Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?
Guidolin, Massimo, and
Eliana La Ferrara. 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?."
American Economic Review,
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)
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La Ferrara, Eliana