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

44 Pages Posted: 8 Dec 2004

See all articles by Eliana La Ferrara

Eliana La Ferrara

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

Massimo Guidolin

Bocconi University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: October 2004

Abstract

This Paper studies the relationship between civil war and private investment 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 also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the 'Angolan' portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.

Keywords: Civil war, event studies, rent-seeking, Angola

JEL Classification: G14, O12, O16

Suggested Citation

La Ferrara, Eliana and Guidolin, Massimo, Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms? (October 2004). CEPR Discussion Paper No. 4668. Available at SSRN: https://ssrn.com/abstract=631608

Eliana La Ferrara (Contact Author)

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

Massimo Guidolin

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

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