49 Pages Posted: 13 Jan 2006
Date Written: February 2007
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: 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: https://ssrn.com/abstract=875808 or http://dx.doi.org/10.2139/ssrn.875808
By Mara Faccio