Working Paper

Diamonds are forever, wars are not. Is conflict bad for private firms?

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 the light of conflict-generated entry barriers, government bargaining power and transparency in the licensing process.

Keywords: Microeconomics; Mineral industries;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2006

Number: 2005-004