Sudden Deaths: Taking Stock of Political Connections
Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only afew cases. We propose a new approach to valuing political ties that builds onthese previous studies. We consider connected to a politician all companies headquartered in the politician’s home town, and use an event study approach tovalue these ties at their unexpected termination. Analysis of a large number ofsudden deaths from around the world since 1973 reveals a market adjusted 2% decline in the value of connected companies. Our results suggest connectionsmatter in many countries, and that they are more important for family firms, firmswith high growth prospects, and firms headquartered in highly corrupt countries.