Abstract
The paper studies the nature and extent of Egyptian “crony” capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak rule. First, we identify politically connected firms and compare the corporate behavior of connected and unconnected large firms before 2011 in terms of their levels of debts, market share, and tax payment. Second, we conduct an event study around the events of 2011 and estimate the market valuation of political connections. Third, we attempt to decompose the extra value that the market attributes to political connections between a current profitability advantage, and future advantages that include higher growth opportunities and (implicit) bail-out guarantees.
Acknowledgement
We want to thank, without incriminating them in any ways, the following colleagues for their insightful comments, which led to improvements of the first draft: Sam Asher, Izak Atiyas, Stijn Claessens, Ahmad Galal, Engy Haddad, Ricardo Hausman, Magda Kandil, Asim Khwaja, Paul Novosad, Mohammed Omran, Roger Owen, Bob Rijkers, Dani Rodrik, Marc Schiffbauer, Michael Walton, John Waterbury, as well as two anonymous referees of this Journal. The views expressed in the paper are those of the authors and should not be attributed to their employers.
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