The Jeffords Effect
AbstractIn May 2001, Senator James Jeffords left the Republican Party and tipped control of the U.S. Senate to the Democrats. This paper uses the surprise event to demonstrate what I term the "Jeffords effect": changes in the political landscape have large effects on the market value of firms. I use a firm's soft-money donations to the national parties as the measure of how the firm aligns itself politically. In this event study, a firm lost .8 percent of market capitalization the week of Jeffords's switch for every $250,000 it gave to the Republicans in the previous election cycle. On the basis of the point estimates, the stock price gain associated with Democratic donations is smaller than the loss associated with Republican donations, but the estimates are consistent with the effects being equal and opposite. The results withstand several robustness checks, and the effects appear to persist over time.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Law and Economics.
Volume (Year): 49 (2006)
Issue (Month): 2 (October)
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Web page: http://www.journals.uchicago.edu/JLE/
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- Randall S. Kroszner & Thomas Stratmann, 1996.
"Interest Group Competition and the Organization of Congress:Theory And Evidence from Financial Services Political Action Committees,"
University of Chicago - George G. Stigler Center for Study of Economy and State
126, Chicago - Center for Study of Economy and State.
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