Diamonds are Forever, Wars are Not. Is Conflict Bad for Private Firms?

35 Pages Posted: 7 Sep 2004

See all articles by Massimo Guidolin

Massimo Guidolin

Bocconi University, Dept. of Finance; Bocconi University - CAREFIN - Centre for Applied Research in Finance

Eliana La Ferrara

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2006

Abstract

This paper studies the relationship between civil war and the value of firms in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as "bad news" rather than "good news" for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We interpret our findings in the light of conflict-generated entry barriers, government bargaining power and transparency in the licensing process.

Keywords: Angola, civil war, rent seeking, event studies

JEL Classification: G14, O12, O16

Suggested Citation

Guidolin, Massimo and La Ferrara, Eliana, Diamonds are Forever, Wars are Not. Is Conflict Bad for Private Firms? (October 2006). Available at SSRN: https://ssrn.com/abstract=586485 or http://dx.doi.org/10.2139/ssrn.586485

Massimo Guidolin (Contact Author)

Bocconi University, Dept. of Finance ( email )

Via Roentgen, 1
2nd floor
Milan, MI 20136
Italy

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti 25
Milan, 20136
Italy

Eliana La Ferrara

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3328 (Phone)
+39 02 5836 3302 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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