IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/5460.html
   My bibliography  Save this paper

Sudden Deaths: Taking Stock of Political Connections

Author

Listed:
  • Parsley, David
  • Faccio, Mara

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.

Suggested Citation

  • Parsley, David & Faccio, Mara, 2006. "Sudden Deaths: Taking Stock of Political Connections," CEPR Discussion Papers 5460, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:5460
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP5460
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Randall Morck & Bernard Yeung, 2003. "Family Control and the Rent-Seeking Society," William Davidson Institute Working Papers Series 585, William Davidson Institute at the University of Michigan.
    2. Bruce Johnson, W. & Magee, Robert P. & Nagarajan, Nandu J. & Newman, Harry A., 1985. "An analysis of the stock price reaction to sudden executive deaths : Implications for the managerial labor market," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 151-174, April.
    3. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
    4. Alberto Alesina & Beatrice Weder, 2002. "Do Corrupt Governments Receive Less Foreign Aid?," American Economic Review, American Economic Association, vol. 92(4), pages 1126-1137, September.
    5. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 503-530.
    6. Kroszner, Randall S & Stratmann, Thomas, 1998. "Interest-Group Competition and the Organization of Congress: Theory and Evidence from Financial Services' Political Action Committees," American Economic Review, American Economic Association, vol. 88(5), pages 1163-1187, December.
    7. Randall Morck & David Stangeland & Bernard Yeung, 2000. "Inherited Wealth, Corporate Control, and Economic Growth The Canadian Disease?," NBER Chapters, in: Concentrated Corporate Ownership, pages 319-372, National Bureau of Economic Research, Inc.
    8. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    9. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    10. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    11. Sung Wook Joh & Ming Ming Chiu, 2004. "Loans to distressed firms: Political connections, Related lending, Business Group Affiliation and Bank Governance," Econometric Society 2004 Far Eastern Meetings 790, Econometric Society.
    12. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 2008. "Why Is Rent-Seeking So Costly to Growth?," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 213-218, Springer.
    13. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 835-864.
    14. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
    15. Morck, Randall K. (ed.), 2000. "Concentrated Corporate Ownership," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226536781.
    16. Dinc, I. Serdar, 2005. "Politicians and banks: Political influences on government-owned banks in emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 453-479, August.
    17. Loughran, Tim & Schultz, Paul, 2005. "Liquidity: Urban versus rural firms," Journal of Financial Economics, Elsevier, vol. 78(2), pages 341-374, November.
    18. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    19. Randall K. Morck & David A. Strangeland & Bernard Yeung, 1998. "Inherited Wealth, Corporate Control and Economic Growth," William Davidson Institute Working Papers Series 209, William Davidson Institute at the University of Michigan.
    20. Hayes, Rachel M. & Schaefer, Scott, 1999. "How much are differences in managerial ability worth?," Journal of Accounting and Economics, Elsevier, vol. 27(2), pages 125-148, April.
    21. Daniel Kaufmann & Pedro C. Vicente, 2011. "Legal Corruption," Economics and Politics, Wiley Blackwell, vol. 23(2), pages 195-219, July.
    22. Loughran, Tim & Schultz, Paul, 2004. "Weather, Stock Returns, and the Impact of Localized Trading Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(2), pages 343-364, June.
    23. Randall K. Morck, 2000. "Concentrated Corporate Ownership," NBER Books, National Bureau of Economic Research, Inc, number morc00-1.
    24. Mark Grinblatt & Matti Keloharju, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, vol. 56(3), pages 1053-1073, June.
    25. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World1," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
    26. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    27. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    28. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    29. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    30. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    31. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Qiuhong Zhao, 2016. "Do Political Connections Affect Bank Loan Loss Provision Reliability?," Accounting and Finance Research, Sciedu Press, vol. 5(3), pages 118-118, August.
    2. Alberto Chong & Mark Gradstein, 2010. "Firm‐Level Determinants Of Political Influence," Economics and Politics, Wiley Blackwell, vol. 22(3), pages 233-256, November.
    3. Ufuk Akcigit & Salomé Baslandze & Francesca Lotti, 2023. "Connecting to Power: Political Connections, Innovation, and Firm Dynamics," Econometrica, Econometric Society, vol. 91(2), pages 529-564, March.
    4. Aviad Tur-Sinai, 2014. "Adaptation patterns and consumer behavior as a dependency on terror," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 13(2), pages 257-269, November.
    5. Lauren Cohen & Joshua D. Coval & Christopher Malloy, 2010. "Do Powerful Politicians Cause Corporate Downsizing?," NBER Working Papers 15839, National Bureau of Economic Research, Inc.
    6. Alberto Chong & Mark Gradstein, 2007. "On the Determinants and Effects of Political Influence," Research Department Publications 4540, Inter-American Development Bank, Research Department.
    7. repec:bla:germec:v:11:y:2010:i::p:441-464 is not listed on IDEAS
    8. Lauren Cohen & Karl B. Diether & Christopher Malloy, 2012. "Legislating Stock Prices," NBER Working Papers 18291, National Bureau of Economic Research, Inc.
    9. Salome Baslandze, 2018. "Connecting to Power: Political Connections, Innovation, and Firm Dynamics," 2018 Meeting Papers 1036, Society for Economic Dynamics.
    10. Cohen, Lauren & Diether, Karl & Malloy, Christopher, 2013. "Legislating stock prices," Journal of Financial Economics, Elsevier, vol. 110(3), pages 574-595.
    11. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    12. 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.
    13. Lauren Cohen & Christopher Malloy, 2010. "Friends in High Places," NBER Working Papers 16437, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Faccio, Mara & Parsley, David C., 2009. "Sudden Deaths: Taking Stock of Geographic Ties," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(3), pages 683-718, June.
    2. Bodnaruk, Andriy & Massa, Massimo & Yadav, Vijay, 2017. "Family ownership, country governance, and foreign portfolio investment," Journal of Empirical Finance, Elsevier, vol. 41(C), pages 96-115.
    3. Fogel, Kathy & Morck, Randall & Yeung, Bernard, 2008. "Big business stability and economic growth: Is what's good for General Motors good for America?," Journal of Financial Economics, Elsevier, vol. 89(1), pages 83-108, July.
    4. Randall Morck, 2011. "Finance and Governance in Developing Economies," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 375-406, December.
    5. Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 58-76.
    6. Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
    7. Bernard Yeung & Randall Morck & Daniel Wolfenzon, 2004. "Corporate Governance, Economic Entrenchment and Growth," Working Papers 04-21, New York University, Leonard N. Stern School of Business, Department of Economics.
    8. Bunkanwanicha, Pramuan & Wiwattanakantang, Yupana & ウィワッタナカンタン, ユパナ, 2006. "Big Business Owners and Politics: Investigating the Economic Incentives of Holding Top Office," CEI Working Paper Series 2006-10, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    9. Jenifer Piesse & Roger Strange & Fahad Toonsi, 2012. "Is there a distinctive MENA model of corporate governance?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(4), pages 645-681, November.
    10. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2005. "The Rise and Fall of the Widely Held Firm: A History of Corporate Ownership in Canada," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 65-148, National Bureau of Economic Research, Inc.
    11. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    12. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2014. "Political participation and entrepreneurial initial public offerings in China," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 269-285.
    13. Randall Morck & Bernard Yeung, 2003. "Family Control and the Rent-Seeking Society," William Davidson Institute Working Papers Series 585, William Davidson Institute at the University of Michigan.
    14. Mara Faccio, 2010. "Differences between Politically Connected and Nonconnected Firms: A Cross‐Country Analysis," Financial Management, Financial Management Association International, vol. 39(3), pages 905-928, September.
    15. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.
    16. Masami Imai, 2006. "Mixing Family Business with Politics in Thailand," Asian Economic Journal, East Asian Economic Association, vol. 20(3), pages 241-256, September.
    17. Habib, Ahsan & Muhammadi, Abdul Haris & Jiang, Haiyan, 2017. "Political connections, related party transactions, and auditor choice: Evidence from Indonesia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(1), pages 1-19.
    18. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2012. "Financing of firms in developing countries : lessons from research," Policy Research Working Paper Series 6036, The World Bank.
    19. Adelino, Manuel & Dinc, I. Serdar, 2014. "Corporate distress and lobbying: Evidence from the Stimulus Act," Journal of Financial Economics, Elsevier, vol. 114(2), pages 256-272.
    20. Habib, Ahsan & Ranasinghe, Dinithi & Muhammadi, Abdul Haris & Islam, Ainul, 2018. "Political connections, financial reporting and auditing: Survey of the empirical literature," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 31(C), pages 37-51.

    More about this item

    Keywords

    Political connections; Sudden deaths;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • H8 - Public Economics - - Miscellaneous Issues

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:5460. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.