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The Value of Connections in Turbulent Times: Evidence from the United States

MIT Department of Economics Working Paper No. 13-22

62 Pages Posted: 8 Dec 2013  

Daron Acemoglu

Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

James Kwak

University of Connecticut - School of Law

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 27, 2013

Abstract

The announcement of Timothy Geithner as nominee for Treasury Secretary in November 2008 produced a cumulative abnormal return for financial firms with which he had a connection. This return was about 6% after the first full day of trading and about 12% after ten trading days. There were subsequently abnormal negative returns for connected firms when news broke that Geithner’s confirmation might be derailed by tax issues. Excess returns for connected firms may reflect the perceived impact of relying on the advice of a small network of financial sector executives during a time of acute crisis and heightened policy discretion.

Keywords: political connections, economic crises, institutions

JEL Classification: G01, G14, G21, G28

Suggested Citation

Acemoglu, Daron and Johnson, Simon and Kermani, Amir and Kwak, James and Mitton, Todd, The Value of Connections in Turbulent Times: Evidence from the United States (November 27, 2013). MIT Department of Economics Working Paper No. 13-22. Available at SSRN: https://ssrn.com/abstract=2363609 or http://dx.doi.org/10.2139/ssrn.2363609

Daron Acemoglu (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center ( email )

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National Bureau of Economic Research (NBER)

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Amir Kermani

University of California, Berkeley ( email )

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National Bureau of Economic Research (NBER) ( email )

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James Kwak

University of Connecticut - School of Law ( email )

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United States

HOME PAGE: http://https://law.uconn.edu/faculty/profiles/james-kwak

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States
801-422-1763 (Phone)

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