Sudden Deaths: Taking Stock of Political Connections

David C. Parsley, OGSM, Vanderbilt University
Mara Faccio, OGSM, Vanderbilt University

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 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 connected companies. Our results suggest connections matter in many countries, and that they are more important 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.