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Sudden Deaths: Taking Stock of Political Connections

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  • 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
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    References listed on IDEAS

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    Citations

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    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.

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    More about this item

    Keywords

    Political connections; Sudden deaths;

    JEL classification:

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

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