Political economy and stock markets in long-term perspective Vorgelegt von: Alexander Lothar Opitz Dissertation zur Erlangung des Doktorgrades (Dr. oec.) Fakultät Wirtschafts- und Sozialwissenschaften Universität Hohenheim, Stuttgart Mai 2016 Datum der mündlichen Doktorprüfung: 7. November 2016 Dekan: Prof. Dr. Dirk Hachmeister Prüfungsvorsitz: Prof. Dr. Gert Kollmer-von Oheimb-Loup Erstgutachter: Prof. Sibylle Lehmann-Hasemeyer, PhD Zweitgutachter: Prof. Dr. Carsten Burhop Acknowledgements First, I would like to express my deep gratitude to my supervisor Sibylle Lehmann-Hasemeyer for the continuous support of my research, for her motivation, immense expertise and her critical, but likewise constructive suggestions. Without her guidance this thesis certainly would not have been completed. Moreover, she encouraged me to participate in various conferences, workshops and summer schools, which after all introduced me to a larger scientific community. Getting impulses from experienced researchers like Carsten Burhop, Kim Oosterlinck, Steven Nafziger, Markus Lampe and Frans Buelens greatly improved the quality of my work. Many other people made major contribution to this thesis: the invitation by Sergey Gelman and the Higher School of Economics to Saint Petersburg was hugely important for my research as well as for me personally. At our institute, my colleague Fabian Wahl provided great aid. Inspiring discussions and not at least a lot of joking made working there a joyful task. The same refers to the research assistants, first of all Johanna Braun, Sina Poerschke and Sabine Jäger, who contributed greatly to this thesis. Vastly helpful were further the vast comments and suggestions I received from other colleagues and friends. I am deeply indebted to Jan Bauer, Chrsitian Engelen, Michael Fink, Katya Khaustova and Mikolay Malinowski. Thank you so much! Contents Introduction ................................................................................................................................ 1 References ............................................................................................................................... 6 Chapter I ................................................................................................................................... 11 ‘Survival of the knittest’ - The value of political connections in pre- and interwar Germany Introduction ........................................................................................................................... 12 The value of a political connection ....................................................................................... 14 Monarchy, democracy and dictatorship in Germany ............................................................ 23 Political connections of Berlin-listed stock companies ........................................................ 28 Performance of politically connected firms .......................................................................... 46 Survival analysis ................................................................................................................... 65 Conclusion ............................................................................................................................ 76 References ............................................................................................................................. 79 Appendix ............................................................................................................................... 89 Chapter II .................................................................................................................................. 97 ‘With a little help of my friend’- Political Connections as risk insurance for investment in times of instability – evidence from interwar Germany Introduction ........................................................................................................................... 98 Political connections as risk insurance ............................................................................... 100 Descriptive statistics and overview of the political connections ........................................ 103 Cross-section – the value of political connections .............................................................. 109 Performance in times of crisis ............................................................................................. 112 Conclusion .......................................................................................................................... 119 References ........................................................................................................................... 120 Appendix ............................................................................................................................. 123 Chapter III .............................................................................................................................. 125 ‘Вставайте, люди русские!’ - The revolution of 1905 and the political stock market Introduction ......................................................................................................................... 126 Consequences of democratisation ....................................................................................... 128 War effect on the stock market ........................................................................................... 132 Russian government bonds and the Saint Petersburg Stock Exchange .............................. 134 i Economic and political backwardness of Imperial Russia ................................................. 136 The struggle for influence in the Far East ........................................................................... 139 Methodology ....................................................................................................................... 142 Data ..................................................................................................................................... 144 Results ................................................................................................................................. 148 Conclusion .......................................................................................................................... 152 References ........................................................................................................................... 154 Conclusion .............................................................................................................................. 161 References ........................................................................................................................... 164 List of tables Chapter I Table 1: Average firm characteristics ...................................................................................... 29 Table 2: Firm characteristics by sector 1913 ........................................................................... 30 Table 3: Firm characteristics by sector 1925 ........................................................................... 30 Table 4: Firm characteristics by sector 1938 ........................................................................... 30 Table 5: Share of connected firms in the various periods ........................................................ 32 Table 6: Political parties with a connection to a firm .............................................................. 37 Table 7: Share of connections within sectors ........................................................................... 40 Table 8: T- test of difference in mean between of connected and non-connected firms ......... 43 Table 9: Logit regression of having any type of political connection ...................................... 44 Table 10: Logit regression, segmented into distance categories .............................................. 45 Table 11: OLS regression of share prices 1913 ....................................................................... 51 Table 12: OLS regression of profitability 1913 ....................................................................... 52 Table 13: OLS regression of share prices 1925 ....................................................................... 53 Table 14: OLS regression of profitability 1925 ....................................................................... 54 Table 15: OLS regression of share prices 1938 ....................................................................... 55 Table 16: OLS regression of profitability 1938 ....................................................................... 56 Table 17: Fixed effect panel data regression of share prices ................................................... 58 Table 18: Propensity score matching results regarding logarithmised share price .................. 60 Table 19: Propensity score matching results regarding return on assets .................................. 61 Table 20: Regression result after Coarsened Exact Matching – share prices .......................... 64 Table 21: Life table of surviving firms .................................................................................... 68 ii Table 22: Parametric survival model regression, failure-time form ........................................ 69 Table 23: Life table of merging firms ...................................................................................... 73 Table 24: Parametric survival