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Sudden Deaths: Taking Stock of Political Connections

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  • Faccio, Mara
  • Parsley, David

Abstract

Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician's hometown, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973, yields a 2% decline in market value of connected companies. Our stronger results are likely due to the lack of a clear event in earlier studies, and lead us to conclude that previous estimates understate the value of political ties.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5460.

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Date of creation: Jan 2006
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Handle: RePEc:cpr:ceprdp:5460

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Keywords: political connections; sudden deaths;

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Cited by:
  1. Lauren Cohen & Karl B. Diether & Christopher Malloy, 2012. "Legislating Stock Prices," NBER Working Papers 18291, National Bureau of Economic Research, Inc.
  2. Alberto Chong & Mark Gradstein, 2007. "Sobre los determinantes y efectos de la influencia de politica (On the Determinants and Effects of Political Influence)," Research Department Publications 4541, Inter-American Development Bank, Research Department.
  3. Niessen, Alexandra & Ruenzi, Stefan, 2009. "Political connectedness and firm performance: Evidence from Germany," CFR Working Papers 07-15, University of Cologne, Centre for Financial Research (CFR).
  4. Alberto Chong & Mark Gradstein, 2007. "On the Determinants and Effects of Political Influence," Research Department Publications 4540, Inter-American Development Bank, Research Department.
  5. Lauren Cohen & Christopher Malloy, 2010. "Friends in High Places," NBER Working Papers 16437, National Bureau of Economic Research, Inc.
  6. Cohen, Lauren & Diether, Karl & Malloy, Christopher, 2013. "Legislating stock prices," Journal of Financial Economics, Elsevier, vol. 110(3), pages 574-595.

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