Discussion Papers 2016

CIRJE-F-1006

"Measuring the extent and implications of corporate political connections in prewar Japan"

Author Name

Okazaki, Tetsuji and Michiru Sawada

Date

March 2016

Full Paper

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Remarks

Subsequently published in Journal of the Japanese and International Economies, June 2016, v. 40, pp. 31-42.

Abstract

This paper explores the extent of political connections of firms, and examines their implications on firm values, using firm-level data from prewar Japan. We collect the data of directors, their positions in the House of Representatives, stock prices and financial performance, on publicly traded companies in late 1920s and early 1930s Japan. It is found that almost 20% of the publicly traded companies had political connections through politician directors. Especially, firms in the regulated industries such as the electric power and railroad, were more likely to have political connections. Overall, there is no evidence that connections with politics added firm values. On the other hand, with respect to those firms that newly obtained political connections, we found that the stock returns improved from the pre-election period to the post-election period.

Keywords: Political connection, Democracy, Election, Firm value, Japan