DP5460 Sudden Deaths: Taking Stock of Political Connections
|Author(s):||Mara Faccio, David Parsley|
|Publication Date:||January 2006|
|Keyword(s):||political connections, sudden deaths|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5460|
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.