Abstract

http://ssrn.com/abstract=1919250
 
 

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Political Geography and Stock Returns: The Value and Risk Implications of Proximity to Political Power


Chansog (Francis) Kim


The State University of New York at Stony Brook

Christos Pantzalis


University of South Florida - College of Business Administration

Jung Chul Park


Auburn University

August 29, 2011

Journal of Financial Economics (JFE), Forthcoming

Abstract:     
We show that political geography has a pervasive effect on the cross-section of stock returns. We collect election results over a 40-year period and use a political alignment index (PAI) of each state’s leading politicians with the ruling (presidential) party to proxy for local firms’ proximity to political power. Firms whose headquarters are located in high PAI states outperform those located in low PAI states, both in terms of raw returns, and on a risk-adjusted basis. Overall, although we cannot rule out indirect political connectedness advantages as an explanation of the PAI effect, our results are consistent with the notion that proximity to political power has stock return implications because it reflects firms’ exposure to policy risk.

Number of Pages in PDF File: 79

Keywords: Political Geography, Political Connections, Policy Risk, Returns, Performance

JEL Classification: G10, G11, H1

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Date posted: August 30, 2011 ; Last revised: September 14, 2011

Suggested Citation

Kim, Chansog (Francis) and Pantzalis, Christos and Park, Jung Chul, Political Geography and Stock Returns: The Value and Risk Implications of Proximity to Political Power (August 29, 2011). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1919250

Contact Information

Chansog (Francis) Kim
The State University of New York at Stony Brook ( email )
Stony Brook, NY 11794
United States
248-525-4051 (Phone)
631-632-9412 (Fax)
Christos Pantzalis (Contact Author)
University of South Florida - College of Business Administration ( email )
4202 E. Fowler Avenue, BSN 3403
Department of Finance
Tampa, FL 33620-5500
United States
813-974-3262 (Phone)
813-974-3084 (Fax)
HOME PAGE: http://www.coba.usf.edu/departments/finance/facult
Jung Chul Park
Auburn University ( email )
303 Lowder Hall
Auburn, AL 36849
United States
334-844-3003 (Phone)
334-844-4960 (Fax)
HOME PAGE: http://harbert.auburn.edu/directory/jung-chul-park
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