Working Paper: CEPR ID: DP5460
Authors: Mara Faccio; David Parsley
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 Codes: G3; H8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sudden death of a politician (B32) | Decline in market value of connected firms (G33) |
| Sudden death of a politician (B32) | Decline in stock prices of firms in the same geographic area (R11) |
| Sudden death of a politician (B32) | Greater decline in value for family-controlled firms (G32) |
| Strength of political connection (D72) | Magnitude of price drop (E30) |
| Sudden death of a politician (B32) | Loss of future political patronage and support (D72) |