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September 16, 2006

Does the Death of Politicially Tied Board Member Impact a Company's Stock Price?

Yesterday at UIUC's College of Business, Vanderbilt Professor Mara Faccio gave a presentation entitled, "Sudden Deaths: Taking Stock of Political Connections", sponsored by the newly formed interdisciplinary group, U2IPERG (University of Ilinois International Political Economy Group) and CIBER, to a full house on sunny Friday afternoon.

Based on the growing literature that points out avenues in which politically connected individuals can benefit companies, Professor Faccio, with co-author Professor David Paisley studied 206 companies world wide who they could they identify as having corporate board members with political ties from 1973-2004. This quest was to answer the following, according to her Powerpoint presentation (submitted to BEL by Professor Paul Vaaler of the BA department):

* How valuable are corporate political ties? * Do geographic ties matter? Or do only personal and family ties count? Does the value of political connections depend on the strength of the relationship? *Do connections simply result in transfers of resources among different agents?

Examples:

Florida Governor Lawton Chiles was an “original investor in Red Lobster restaurants.”

Baroness Brigstocke (of the UK House of Lords) was connected to Westminster Health Care Holdings Plc, since her husband Lord Griffiths was chairman of that company.

French Senator Claude Cornac was labeled as connected to Renault and Gas de France because of prior directorships.

Pamela Harriman, a Democrat, was a British aristocrat who was "very familiar" with many men in political circles, including Averell Harriman, diplomat and millionaire spouse.

Professor Faccio concluded the following from looking at press releases via Factiva and stock prices via Datastream and Worldscope (directly borrowed from her presentation):

Political ties, identified from the (common) location of a company’s headquarters and the city of the deceased politician, are particularly valuable for shareholders..

--Average price drop of -1.93% around the death of the politician for a sample of 7,080 companies
--Comparisons with previous studies suggest the value of political connections has previously been underestimated
--The price drop is even larger for those companies that are more likely to have stronger political links

Afterward, Professor Faccio met with some students who are interested in international political economy and strategy. Picture is below

IMG_1802.jpg

Photo Credit: Natayla Shipachova, UIUC Doctoral Student.

There will be more monthly U2IREG seminars this fall. Stay tuned.

Posted by Becky at September 16, 2006 2:31 PM Posted to Corporate Governance | International | Political Ecomony | UIUC B-School News