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Betting on Hitler - The Value of Political Connections in Nazi Germany

60 Pages Posted: 2 Feb 2005  

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Thomas Ferguson

University of Massachusetts Boston - Department of Political Science

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Abstract

We examine the effect of close links with the NSDAP on the stock price of listed firms in 1932-33. While earlier work had primarily analysed the connections between executives and the Nazi party, we also look at supervisory board membership - the importance of which is hard to overestimate in the case of Germany industry. One implication of our work is that, weighted by stockmarket capitalization in 1932, more than half of listed firms on the Berlin stock exchange had substantive links with the NSDAP. Crucially, stock market investors recognized the value of these links, sending the share prices of connected firms up once the new regime was firmly established. While all firms including unaffiliated ones saw a rise in their stock prices after Hitler's seizure of power, those with board members known to favor the party (or backing it financially) outperformed the market by 6 to 9 percent between January and May 1933. We show that this finding is robust to a range of additional control variables and alternative estimation techniques.

Keywords: Political connections, stock market, asset pricing, Nazi rise to power, interwar Germany

JEL Classification: G12, G13, G15, N24

Suggested Citation

Voth, Hans-Joachim and Ferguson, Thomas, Betting on Hitler - The Value of Political Connections in Nazi Germany. Quarterly Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=651984

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Thomas Ferguson (Contact Author)

University of Massachusetts Boston - Department of Political Science ( email )

Boston, MA 02125
United States
617-265-7173 (Fax)

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