Sudden Deaths: Taking Stock of Geographic Ties

55 Pages Posted: 13 Jan 2006 Last revised: 23 Oct 2018

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: February 1, 2007

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 Classification: G3, G28

Suggested Citation

Faccio, Mara and Parsley, David C., Sudden Deaths: Taking Stock of Geographic Ties (February 1, 2007). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 113/2006, AFA 2008 New Orleans Meetings Paper, Available at SSRN: https://ssrn.com/abstract=875808 or http://dx.doi.org/10.2139/ssrn.875808

Mara Faccio (Contact Author)

Mitchell E. Daniels, Jr. School of Business, Purdue University ( email )

403 W. State Street
West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

David C. Parsley

Vanderbilt University – Finance and Economics ( email )

401 21st Avenue South
Nashville, TN 37203
United States
615-322-0649 (Phone)
615-343-7177 (Fax)

HOME PAGE: https://business.vanderbilt.edu/bio/david-parsley/

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