RFS Advance Access originally published online on October 2, 2008
Review of Financial Studies 2009 22(6):2331-2360; doi:10.1093/rfs/hhn088
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Do Politically Connected Boards Affect Firm Value?
Indiana University
ESMT European School of Management and Technology in Berlin
University of North Carolina at Chapel Hill
Send correspondence to Eitan Goldman, Indiana University, 107 S. Indiana Ave., Bloomington, IN 47405-7000; telephone: (812) 856-0749. E-mail: eigoldma{at}indiana.edu.
JEL Classification: G30, G34, G38
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Abstract |
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This article explores whether political connections are important in the United States. The article uses an original hand-collected data set on the political connections of board members of S&P 500 companies to sort companies into those connected to the Republican Party and those connected to the Democratic Party. The analysis shows a positive abnormal stock return following the announcement of the nomination of a politically connected individual to the board. This article also analyzes the stock-price response to the Republican win of the 2000 presidential election and finds that companies connected to the Republican Party increase in value, and companies connected to the Democratic Party decrease in value.
We would like to thank Anup Agrawal, Jennifer Conrad, Mara Faccio, Ray Fisman, Paolo Fulghieri, Huseyin Gulen, Matthias Kahl, Alexander Ljungqvist, Pamela Moulton, David Robinson, Karèn Simonyan, Günter Strobl, and seminar participants at American University, University of Arizona, Arizona State University, University of California--Davis, Georgia Tech, Indiana University, University of Michigan, Pittsburgh University, University of North Carolina, University of Toronto, University of Virginia, the 2006 CRES/Washington University Conference on Corporate Finance in St Louis, the William and Mary 2006 Batten Conference, the 2007 AFA Conference in Chicago, the 17th Utah Winter Finance Conference 2007 in Salt Lake City, and the 2007 EFA Meetings in Ljubljana for helpful comments. We are grateful to the Wachovia Center for Corporate Finance and the Peter Curtius Foundation.