۱- Introduction

۲- Consequences of warfare

۳- Data and methodology

۴- War and country-level outcomes

۵- Military directors and firm performance

۶- Robustness checks

۷- Military directors and firm leverage

۸- Conclusion and future research

References

Abstract

This study estimates the effects of wars on countries and firms. We first show immediate negative effects of wars on economic and financial development as well as legal institutions. Using a cross-country sample of 93,697 firm-year observations, we further argue and show that (i) wars increase the supply of military directors in corporate boards; and (ii) military directors reduce firm performance as measured by Tobin’s Q and return on assets (ROA). We interpret these lingering effects as military directors possessing social capital but lacking business expertise. Our results are robust to a matched sample, a lagged difference model, a dynamic general method of moments model and to the control of country, industry and year fixed effects.

Introduction

War brings destruction to society and is often described as ‘‘development in reverse” (Collier et al., 2003). A large crosscountry literature shows that war-torn regions suffer from a substantial decline in total output, experience slower economic development, and have less persistent growth rates compared to similar but peaceful regions (Barro, 1991; Alesina et al., 1996; Alesina and Perotti, 1996). While this literature has been enormously influential, it has not yet been able to isolate a clear channel through which war influences economic performance. This paper links war to firm economic performance through directors with military experience. In doing so, we attempt to take a step further in understanding the relationship between, and the mechanism linking, war and its economic consequences. Understanding how war influences economic development is crucial, because nearly half of all countries in the world have suffered from either external or internal armed conflict in the past few decades (Gleditsch et al., 2002; Harbom and Wallensteen, 2007; Blattman and Miguel, 2010). People living in war-affected places may be killed, traumatized, or separated from their families. They may also be displaced, prevented from attaining education, and excluded from skilled work. A vibrant stream of research documents the negative effects of war on later-life income, health, and education.