Sudden Deaths: Taking Stock of Political Connections

Faccio, Mara; Parsley, David C.

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Sudden Deaths: Taking Stock of Political Connections

CEPR Discussion Paper No. 5460

40 Pages Posted: 27 Apr 2006

See all articles by Mara Faccio

Mara Faccio

Mitchell E. Daniels, Jr. School of Business, Purdue University; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

David C. Parsley

Vanderbilt University – Finance and Economics

Date Written: January 2006

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.

Keywords: Political connections, sudden deaths

JEL Classification: G3, H8

Suggested Citation: Suggested Citation

Faccio, Mara and Parsley, David C., Sudden Deaths: Taking Stock of Political Connections (January 2006). CEPR Discussion Paper No. 5460, Available at SSRN: https://ssrn.com/abstract=899378