, Volume 4, Issue 1, pp 83–112 | Cite as

The effects of surprise political events on quoted firms: the March 2004 election in Spain

Open Access
Original Article


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.


Event study Median voter Agency Capture Elections Political connections 

JEL Classification

G14 G15 


  1. 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: 451–463CrossRefGoogle Scholar
  2. Abadie A, Gardeazábal J (2003) The economic costs of conflict: a case study of the Basque Country. Am Econ Rev 93(1): 113–132CrossRefGoogle Scholar
  3. Abadie A, Gardeazábal J (2008) Terrorism and the world economy. Eur Econ Rev 52: 1–27CrossRefGoogle Scholar
  4. Alesina A, Rosenthal H (1995) Partisan politics, divided government and the economy. Cambridge University PressGoogle Scholar
  5. Bel G, Trillas F (2005) Privatization, corporate control and regulatory reform: the case of Telefónica?. Telecommun Policy 29: 25–51CrossRefGoogle Scholar
  6. Bergman T (1995) Constitutional rules and party goals in coalitions formation. An analysis of winning minority governments in Sweden. Umea UniversiteitGoogle Scholar
  7. Binder JJ (1985) Measuring the effects of regulation with stock price data. RAND J Econ 16(2): 167–183CrossRefGoogle Scholar
  8. Binder JJ (1998) The event study methodology since 1969. Rev Quant Finance Account 11: 111–137CrossRefGoogle Scholar
  9. Blomberg SB, Hess GD (2008) Economics of terrorism, 2nd edn. New Palgrave Dictionary of EconomicsGoogle Scholar
  10. Boix C (1996) Partidos políticos, crecimiento e igualdad. Estrategias económicas conservadoras y socialdemócratas en democracias avanzadas. Alianza Editorial, MadridGoogle Scholar
  11. Boubakri N, Cosset JC, Saffar W (2008) Political connections of newly privatized firms. J Corp Finance 14: 654–673CrossRefGoogle Scholar
  12. Chou P (2004) Bootstrap tests for multivariate event studies. Rev Quant Finance Account 23: 275–290CrossRefGoogle Scholar
  13. Downs A (1957) An economic theory of democracy. Harper and Row, New YorkGoogle Scholar
  14. Effron B (1979) Bootstrap methods: another look at the Jacknife. Ann Stat 7: 1–26CrossRefGoogle Scholar
  15. Enders WK, Sandler T (1991) Causality between transnational terrorism and tourism: the case of Spain. Terrorism 14(1): 49–58CrossRefGoogle Scholar
  16. Enders WK, Sandler T (1996) Terrorism and foreign direct investment in Spain and Greece. Kyklos 49: 331–352CrossRefGoogle Scholar
  17. Enders W, Sandler T, Parise GF (1992) An econometric analysis of the impact of terrorism on tourism. Kyklos 45(4): 531–554CrossRefGoogle Scholar
  18. Faccio M (2006) Politically connected firms. Am Econ Rev 96(1): 369–386CrossRefGoogle Scholar
  19. Ferguson T, Voth HJ (2008) Betting on Hitler—the value of political connections in Nazi Germany. Q J Econ 123(1): 101–137CrossRefGoogle Scholar
  20. Ferreira F, Gyourko J (2009) Do political parties matter? Evidence from US Cities. Q J Econ 124(1): 399–422CrossRefGoogle Scholar
  21. Fisman R (2001) Estimating the value of political connections. Am Econ Rev 91(4): 1095–1102CrossRefGoogle Scholar
  22. Frey BS, Luechinger S, Stutzer A (2007) Calculating tragedy: assessing the costs of terrorism. J Econ Surv 21(1): 1–24CrossRefGoogle Scholar
  23. 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. mimeoGoogle Scholar
  24. 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): 1146–1154CrossRefGoogle Scholar
  25. Goldman E, Rocholl J, So J (2008) Do politically connected boards affect firm value?. Rev Financ Stud 22(6): 2331–2360CrossRefGoogle Scholar
  26. Grossman JM, Helpman E (2002) Special interest politics. MIT PressGoogle Scholar
  27. Herron MC (2000) Estimating the economic impact of political party competition in the 1992 British Election. Am J Polit Sci 44(2): 326–337CrossRefGoogle Scholar
  28. 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): 51–81CrossRefGoogle Scholar
  29. Hibbs DA (1977) Political parties and macroeconomic policy. Am Polit Sci Rev 71: 1467–1487CrossRefGoogle Scholar
  30. Horowitz JL (2001) The bootstrap. Handbook of econometrics, vol 5. North Holland, pp 3159–3228Google Scholar
  31. Hotelling H (1929) Stability in competition. Econ J 39(153): 41–57CrossRefGoogle Scholar
  32. Jayachandran S (2006) The Jeffords effect. J Law Econ XLIX: 397–425CrossRefGoogle Scholar
  33. 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): 1245–1270CrossRefGoogle Scholar
  34. Khotari SP, Warner JB (2007) Econometrics of event studies. Handbook of corporate finance: empirical corporate finance, Chap 1Google Scholar
  35. Laver M, Schofield N (1998) Multiparty government: the politics of coalition in Europe. The University of Michigan PressGoogle Scholar
  36. 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): 780–802CrossRefGoogle Scholar
  37. MacKinlay AC (1997) Event studies in economics and finance. J Econ Lit 35: 13–39Google Scholar
  38. Pantzalis C, Stangeland DA, Turtle HJ (2000) Political elections and the resolution of uncertainty: the international evidence. J Bank Finance 24: 1575–1604CrossRefGoogle Scholar
  39. Persson T, Tabbellini G (2000) Political economics. Explaining economic policy. The MIT PressGoogle Scholar
  40. Petterson-Lidbom P (2008) Do parties matter for economic outcomes? A regression-discontinuity approach. J Eur Econ Assoc 6(5): 1037–1056CrossRefGoogle Scholar
  41. Reniu JM (2001) Las teorías de las coaliciones políticas revisadas: la formación de gobiernos minoritarios en España, 1977–1996. Universitat de BarcelonaGoogle Scholar
  42. 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 ElgarGoogle Scholar
  43. Riker WH (1962) The theory of political coalitions. Greenwood Publishing GroupGoogle Scholar
  44. Roberts BE (1990) Political institutions, policy expectations, and the 1980 election: a financial market perspective. Am J Polit Sci 34(2): 289–310CrossRefGoogle Scholar
  45. Roemer JE (2001) Political competition. Theory and applications. Harvard University PressGoogle Scholar
  46. Shum PM (1995) The 1992 Canadian constitutional referendum: using financial data to assess economic consequences. Can J Econ 28(4): 794–807CrossRefGoogle Scholar
  47. Trillas F (2004) The structure of corporate ownership in privatized utilities. Investigaciones Económicas XXVII(2): 257–284Google Scholar
  48. 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 CivitasGoogle Scholar
  49. Tversky A, Kahneman D (1991) Loss aversion in riskless choice: a reference dependent model. Q J Econ 106: 1039–1061CrossRefGoogle Scholar
  50. Vuchelen J (2003) Electoral systems and the effects of political events on the stock market: the Belgian case. Econ Polit 15(1): 85–102CrossRefGoogle Scholar

Copyright information

© The Author(s) 2011

This article is published under license to BioMed Central Ltd. Open Access This article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution and reproduction in any medium, provided the original author(s) and source are credited.

Authors and Affiliations

  1. 1.UK Government Economic ServiceLondonUK
  2. 2.Universitat Autònoma de Barcelona (UAB)Cerdanyola del VallésSpain
  3. 3.Institut d’Economia de Barcelona (IEB)BarcelonaSpain
  4. 4.IESE SP-SP CentreBarcelonaSpain

Personalised recommendations