Abstract
In the last days of the electoral campaign for the 2004 general election in Spain, on Thursday March 11th 2004, a series of simultaneous terror attacks caused the death of 191 persons in commuting trains in the capital Madrid. Four days later, the opposition party won the election, against all predictions that were made prior to the terror attacks. This change in expectations presents a unique opportunity to take advantage of event study techniques to test some politico-economic hypotheses. The quantitative exercise is carried out employing Seemingly Unrelated Regressions (SUR). Hypothesis testing is improved by means of bootstrapping techniques. Convergence theories prove quite resilient as, jointly, quoted firms were not significantly affected by the election outcome. The impact on politically connected companies and particular economic sectors, however, suggest that a combination of capture and agency problems may play a role in explaining the effects of the change in expectations.
Article PDF
Similar content being viewed by others
Avoid common mistakes on your manuscript.
References
Abadie A, Dermisi S (2008) Is terrorism eroding agglomeration economies in Central Business Districts? Lessons from the Office Real Estate Market in Downtown Chicago. J Urban Econ 64: 451–463
Abadie A, Gardeazábal J (2003) The economic costs of conflict: a case study of the Basque Country. Am Econ Rev 93(1): 113–132
Abadie A, Gardeazábal J (2008) Terrorism and the world economy. Eur Econ Rev 52: 1–27
Alesina A, Rosenthal H (1995) Partisan politics, divided government and the economy. Cambridge University Press
Bel G, Trillas F (2005) Privatization, corporate control and regulatory reform: the case of Telefónica?. Telecommun Policy 29: 25–51
Bergman T (1995) Constitutional rules and party goals in coalitions formation. An analysis of winning minority governments in Sweden. Umea Universiteit
Binder JJ (1985) Measuring the effects of regulation with stock price data. RAND J Econ 16(2): 167–183
Binder JJ (1998) The event study methodology since 1969. Rev Quant Finance Account 11: 111–137
Blomberg SB, Hess GD (2008) Economics of terrorism, 2nd edn. New Palgrave Dictionary of Economics
Boix C (1996) Partidos políticos, crecimiento e igualdad. Estrategias económicas conservadoras y socialdemócratas en democracias avanzadas. Alianza Editorial, Madrid
Boubakri N, Cosset JC, Saffar W (2008) Political connections of newly privatized firms. J Corp Finance 14: 654–673
Chou P (2004) Bootstrap tests for multivariate event studies. Rev Quant Finance Account 23: 275–290
Downs A (1957) An economic theory of democracy. Harper and Row, New York
Effron B (1979) Bootstrap methods: another look at the Jacknife. Ann Stat 7: 1–26
Enders WK, Sandler T (1991) Causality between transnational terrorism and tourism: the case of Spain. Terrorism 14(1): 49–58
Enders WK, Sandler T (1996) Terrorism and foreign direct investment in Spain and Greece. Kyklos 49: 331–352
Enders W, Sandler T, Parise GF (1992) An econometric analysis of the impact of terrorism on tourism. Kyklos 45(4): 531–554
Faccio M (2006) Politically connected firms. Am Econ Rev 96(1): 369–386
Ferguson T, Voth HJ (2008) Betting on Hitler—the value of political connections in Nazi Germany. Q J Econ 123(1): 101–137
Ferreira F, Gyourko J (2009) Do political parties matter? Evidence from US Cities. Q J Econ 124(1): 399–422
Fisman R (2001) Estimating the value of political connections. Am Econ Rev 91(4): 1095–1102
Frey BS, Luechinger S, Stutzer A (2007) Calculating tragedy: assessing the costs of terrorism. J Econ Surv 21(1): 1–24
Füss R, Bechtel M (2006) Partisan politics and stock market performance: the effect of Expected Government Partisanship on stock returns in the 2002 German Federal Election. mimeo
García Montalvo J (2011) Voting after the bombing: a natural experiment on the effect of terrorist attacks on democratic elections. Rev Econ Stat 93(4): 1146–1154
Goldman E, Rocholl J, So J (2008) Do politically connected boards affect firm value?. Rev Financ Stud 22(6): 2331–2360
Grossman JM, Helpman E (2002) Special interest politics. MIT Press
Herron MC (2000) Estimating the economic impact of political party competition in the 1992 British Election. Am J Polit Sci 44(2): 326–337
Herron MC, Lavin J, Cram D, Silver J (1999) Measurement of political effects on the United States Economy: a study of the 1992 Presidential Election. Econ Polit 11(1): 51–81
Hibbs DA (1977) Political parties and macroeconomic policy. Am Polit Sci Rev 71: 1467–1487
Horowitz JL (2001) The bootstrap. Handbook of econometrics, vol 5. North Holland, pp 3159–3228
Hotelling H (1929) Stability in competition. Econ J 39(153): 41–57
Jayachandran S (2006) The Jeffords effect. J Law Econ XLIX: 397–425
Jensen NM, Schmith S (2005) Market responses to politics: the rise of Lula and the decline of the Brazilian stock market. Compar Polit Stud 38(10): 1245–1270
Khotari SP, Warner JB (2007) Econometrics of event studies. Handbook of corporate finance: empirical corporate finance, Chap 1
Laver M, Schofield N (1998) Multiparty government: the politics of coalition in Europe. The University of Michigan Press
Leblang D, Mukherjee B (2005) Government partisanship, elections, and the stock market: examining American and British stock returns, 1930–2000. Am J Polit Sci 49(4): 780–802
MacKinlay AC (1997) Event studies in economics and finance. J Econ Lit 35: 13–39
Pantzalis C, Stangeland DA, Turtle HJ (2000) Political elections and the resolution of uncertainty: the international evidence. J Bank Finance 24: 1575–1604
Persson T, Tabbellini G (2000) Political economics. Explaining economic policy. The MIT Press
Petterson-Lidbom P (2008) Do parties matter for economic outcomes? A regression-discontinuity approach. J Eur Econ Assoc 6(5): 1037–1056
Reniu JM (2001) Las teorías de las coaliciones políticas revisadas: la formación de gobiernos minoritarios en España, 1977–1996. Universitat de Barcelona
Richardson HW, Gordon P, Moore JE, Kim S, Park J, Pan Q (2007) Tourism and terrorism: the national and interregional economic impacts of attacks on major US theme Parks. In: Richardson HW, Gordon P, Moore JE (eds) The economic costs and consequences of terrorism. Edward Elgar
Riker WH (1962) The theory of political coalitions. Greenwood Publishing Group
Roberts BE (1990) Political institutions, policy expectations, and the 1980 election: a financial market perspective. Am J Polit Sci 34(2): 289–310
Roemer JE (2001) Political competition. Theory and applications. Harvard University Press
Shum PM (1995) The 1992 Canadian constitutional referendum: using financial data to assess economic consequences. Can J Econ 28(4): 794–807
Trillas F (2004) The structure of corporate ownership in privatized utilities. Investigaciones Económicas XXVII(2): 257–284
Trillas F (2010) Corporate control in the electricity industry. In: Jiménez JC, García Delgado JL (eds) Energy regulation in Spain: from monopoly to market. Thomson Civitas
Tversky A, Kahneman D (1991) Loss aversion in riskless choice: a reference dependent model. Q J Econ 106: 1039–1061
Vuchelen J (2003) Electoral systems and the effects of political events on the stock market: the Belgian case. Econ Polit 15(1): 85–102
Author information
Authors and Affiliations
Corresponding author
Additional information
We thank Arnau Rovira (Universitat Pompeu Fabra) for excellent research assistance during this project.
We acknowledge financial support from project ECO2010-20718.
Rights and permissions
Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License (https://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
About this article
Cite this article
Castells, P., Trillas, F. The effects of surprise political events on quoted firms: the March 2004 election in Spain. SERIEs 4, 83–112 (2013). https://doi.org/10.1007/s13209-011-0080-5
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s13209-011-0080-5