Sudden Deaths: Taking Stock of Geographic Ties

Sudden Deaths: Taking Stock of Geographic Ties

Mara Faccio, David Parsley

Series number :

Serial Number: 
113/2006

Date posted :

January 01 2006

Last revised :

October 24 2018
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Keywords

  • political ties • 
  • political connections

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 extreme 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 home town, 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 reveals a market adjusted 1.7% decline in the value of geographically connected companies. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results additionally show a larger effect for family firms, firms with high growth prospects, firms operating in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries.

Published in

Published in: 
Description: 
AFA 2008 New Orleans Meetings Paper | Journal of Financial and Quantitative Analysis 44 (3), 683-718

Authors

Real name:
Research Member
Purdue University - Krannert School of Management
Real name:
David Parsley