The impact of political majorities on firm value: Do electoral promises or friendship connections matter?

• We estimate returns from platforms of the 2007 French presidential election.
• The value of firms that would likely benefit from platforms changed by 1–2%.
• We estimate returns from connections to one of the main candidates.
• Firms connected to Sarkozy out-performed others by 3% due to his election.
• Returns from connections are at least as large as returns from announced policies.

This paper simultaneously estimates the impact of political majorities on the values of firms that would benefit from the platforms of the two main candidates at the 2007 French presidential election, Ségolène Royal and Nicolas Sarkozy, and of those that are ruled or owned by Sarkozy's friends. We use prediction-market data to track each candidate's victory probability, and investigate how this relates to firms' abnormal returns. Our estimates suggest that the value of firms that would likely benefit from the platforms of Royal and Sarkozy changed by 1% and 2%, respectively, with the candidates' victory probabilities, and that firms connected to Sarkozy out-performed others by 3% due to his election.