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The impact of unsuccessful pirate attacks on financial markets: Evidence in support of Leeson's reputation-building theory

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  • Belasen, Ariel R.
  • Kutan, Ali M.
  • Belasen, Alan T.

Abstract

This paper examines the effect of unsuccessful Somali pirate attacks on financial-market returns in the Arabian Peninsula. Specifically, it tests Leeson's (2010a) reputation-building theory of pirate signaling behavior postulating that unsuccessful pirate attacks may trigger subsequent future attacks by pirates as pirates attempt to maintain and build their reputation for effective piracy. We test this theory empirically by studying the relationship between pirate attacks and financial-market returns in the Arabian Peninsula. The result of our empirical test supports Leeson's theory: unsuccessful pirate attacks are associated with lower financial-market returns, suggesting that market participants expect unsuccessful pirate attacks to be followed by future pirate attacks.

Suggested Citation

  • Belasen, Ariel R. & Kutan, Ali M. & Belasen, Alan T., 2017. "The impact of unsuccessful pirate attacks on financial markets: Evidence in support of Leeson's reputation-building theory," Economic Modelling, Elsevier, vol. 60(C), pages 344-351.
    • Handle: RePEc:eee:ecmode:v:60:y:2017:i:c:p:344-351
    DOI: 10.1016/j.econmod.2016.10.005
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    More about this item

    Keywords

    F02; F23; G15; Reputation-building; Pirates; Expectations; Financial markets;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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