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Sudden Deaths: Taking Stock of Geographic Ties

Mara Faccio
Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

David C. Parsley
Vanderbilt University - Owen Graduate School of Management


February 2007

ECGI - Finance Working Paper No. 113/2006
AFA 2008 New Orleans Meetings Paper

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 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.

Keywords: political ties, political connections

JEL Classifications: G3, G28

Working Paper Series

Date posted: January 13, 2006 ; Last revised: March 05, 2007

Suggested Citation

Faccio, Mara and Parsley, David C., Sudden Deaths: Taking Stock of Geographic Ties (February 2007). ECGI - Finance Working Paper No. 113/2006; AFA 2008 New Orleans Meetings Paper. Available at SSRN: http://ssrn.com/abstract=875808


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Contact Information

Mara Faccio (Contact Author)
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London EC1V 7RR United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels Belgium
HOME PAGE: http://www.ecgi.org
David C. Parsley
Vanderbilt University - Owen Graduate School of Management ( email )
401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)
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