Bringing Connections Onboard: The Value of Political Influence

Abstract

In 2002, an amendment to UK parliamentary regulations removed restrictions on the participation of members of parliament (MPs) in parliamentary proceedings related to their corporate interests. Using this amendment as a quasi-natural experiment, we demonstrate higher equity returns for FTSE 350 firms connected to an MP due to the increase in the value of political access, net of the expertise of the politician. Post-amendment, MPs with corporate connections are more likely to be members of parliamentary select and joint committees and attend more committee meetings. Firms are more likely to appoint MPs and reduce political donations. The benefits of higher political access are greater for firms with family ownership and lower accounting transparency.