Sleeping with the enemy: The perils of having the government on(the)board

: We study the causal effect of unsought political connections on firm value. To address concerns of potential endogeneity and sample-selection bias we exploit the nationalization of Argentina’s pension system, a unique natural experiment yielding exogenous variation in new political connections. We find unsought political connections to have a large negative effect on the value of newly connected firms. Yet this result only materializes when, in addition to becoming a shareholder, the government also obtains the right to appoint directors. Decreased stock liquidity or higher stock volatility do not explain this result, suggesting a channel that decreases expected cash flows to shareholders.

• Publication year

  2022

• Venue

  Journal of comparative economics (Print)

• Publication date

  2022-01-01

• Fields of study

  Not labeled

• Identifiers
  DOI 10.1016/j.jce.2022.01.005
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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