American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?
American Economic Review
vol. 97,
no. 5, December 2007
(pp. 1978–1993)
Abstract
This paper studies the relationship between civil war and the value of firms in a poor, resource-abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as "bad news" rather than "good news" for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We interpret our findings in light of conflict-generated entry barriers, government bargaining power, and transparency in the licensing process. (JEL D74, G32, O13, O17, Q34)Citation
Guidolin, Massimo, and Eliana La Ferrara. 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?" American Economic Review, 97 (5): 1978–1993. DOI: 10.1257/aer.97.5.1978Additional Materials
JEL Classification
- D74 Conflict; Conflict Resolution; Alliances
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- Q34 Natural Resources and Domestic and International Conflicts