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Sudden Deaths: Taking Stock of Political Connections

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Author Info
Faccio, Mara
Parsley, David

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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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Related research
Keywords: political connections sudden deaths

Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
H8 - Public Economics - - Miscellaneous Issues

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alberto Chong & Mark Gradstein, 2007. "On the Determinants and Effects of Political Influece," RES Working Papers 1069, Inter-American Development Bank, Research Department. [Downloadable!]
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