Stock Market Reactions to Political Events: What Can We Learn about the Efficacy of Political Connections?

The value of some firms is strongly affected by which party controls political power. Stock market reactions to political events demonstrate this. However, contrary to common perception, event studies do not indicate that the ability to make unlimited campaign contributions enhances a firm’s value. Geographic and personal connections to political actors matter more, although there is some evidence that personal connections may be rented via professional lobbying.

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