Government intervention, political connections, and stock performance: an event study from Argentina

Abstract This paper examines whether political connections can protect firms from losses resulting from a government’s adverse policies. I explore this question in the context of Argentina’s partial nationalization of publicly traded firms in 2008–2011, resulting from the counter-reform of the country’s pension system. I find that partially nationalized firms in Argentina incurred much greater losses than firms in a control group. Among the partially nationalized firms, those with political connections were hurt less than non-connected firms. However, political connections lost all their value in firms where the government acquired a very large ownership stake. I also find that foreign ownership offered firms no protection against losses stemming from partial nationalization. These results suggest that in an unfavorable policy environment, firms may not be able to fully rely on political connections for protection.