Do Former Civil Servants Affect a Firm’s Value and Credit Spreads?
Earlier studies estimating the value of political connections firms gain by hiring former government official have focused mostly on politicians and high-ranked former government officials. In this paper, I extend the common definition of former government officials to include all politicians and civil servants, at working levels and senior levels. Using a rich and coherent dataset, I estimate the effect of these former government officials on publicly listed firms’ value and credit spreads in Israel in the years 2007–2015. I find that firm’s value increases following the appointment of former government officials to a firm’s management, with no additional increase associated with high-ranked former government officials. Credit spreads, however, decrease only with the appointment of high-ranked former government officials. I find further that both effects are greater if the appointee is the first former government official to be employed by the firm, and that these results are sensitive to the number of years that pass between the departure of the appointee from his or her last position in the political system or civil service and the time of his or her appointment to firm’s management. These results stress the importance of including all ranks of former government officials and their background when testing for the value of political connections.