IDEAS home Printed from https://ideas.repec.org/a/kap/pubcho/v157y2013i1p41-50.html
   My bibliography  Save this article

On political connectedness and the arrest of Ivan Boesky

Author

Listed:
  • Charles Knoeber
  • Mark Walker

Abstract

The bombshell arrest of Ivan Boesky on November 14, 1986 signaled the intention of then-US attorney for the southern district of New York, Rudy Giuliani, to increase enforcement of laws against insider trading. Looking at concurrent stock price changes, we find that New York companies were affected especially. More interestingly, New York firms with active political arms fared better than those without them; and New York firms connected to Mr. Giuliani’s Republican Party fared better still. We find no such effects for non-New York firms. These findings suggest that political connectedness was valuable in the era of more rigorous legal enforcement associated with Mr. Giuliani’s attack on insider trading. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Charles Knoeber & Mark Walker, 2013. "On political connectedness and the arrest of Ivan Boesky," Public Choice, Springer, vol. 157(1), pages 41-50, October.
    • Handle: RePEc:kap:pubcho:v:157:y:2013:i:1:p:41-50
    DOI: 10.1007/s11127-012-9939-7
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11127-012-9939-7
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11127-012-9939-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2002. "Managerial Power and Rent Extraction in the Design of Executive Compensation," CEPR Discussion Papers 3558, C.E.P.R. Discussion Papers.
    2. Bettis, J. C. & Coles, J. L. & Lemmon, M. L., 2000. "Corporate policies restricting trading by insiders," Journal of Financial Economics, Elsevier, vol. 57(2), pages 191-220, August.
    3. repec:cup:jfinqa:v:46:y:2011:i:06:p:1865-1891_00 is not listed on IDEAS
    4. Eitan Goldman & Jörg Rocholl & Jongil So, 2009. "Do Politically Connected Boards Affect Firm Value?," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2331-2360, June.
    5. Michael J. Cooper & Huseyin Gulen & Alexei V. Ovtchinnikov, 2010. "Corporate Political Contributions and Stock Returns," Journal of Finance, American Finance Association, vol. 65(2), pages 687-724, April.
    6. Jayachandran, Seema, 2006. "The Jeffords Effect," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 397-425, October.
    7. Faith, Roger L & Leavens, Donald R & Tollison, Robert D, 1982. "Antitrust Pork Barrel," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 329-342, October.
    8. Yu, Frank & Yu, Xiaoyun, 2011. "Corporate Lobbying and Fraud Detection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1865-1891, December.
    9. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    10. Coate, Malcolm B & Higgins, Richard S & McChesney, Fred S, 1990. "Bureaucracy and Politics in FTC Merger Challenges," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 463-482, October.
    11. Schipper, K & Thompson, R, 1983. "The Impact Of Merger-Related Regulations On The Shareholders Of Acquiring Firms," Journal of Accounting Research, Wiley Blackwell, vol. 21(1), pages 184-221.
    12. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    13. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    14. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    15. Lucian Bebchuk & Jesse Fried, 2002. "Power, rent extraction, and executive compensation," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(03), pages 23-28, October.
    16. Darren T. Roulstone, 2003. "The Relation Between Insider‐Trading Restrictions and Executive Compensation," Journal of Accounting Research, Wiley Blackwell, vol. 41(3), pages 525-551, June.
    17. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
    18. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    19. Haidan Li & Morton Pincus & Sonja Olhoft Rego, 2008. "Market Reaction to Events Surrounding the Sarbanes-Oxley Act of 2002 and Earnings Management," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 111-134, February.
    20. McChesney, Fred S. & Shughart II, William F. (ed.), 1995. "The Causes and Consequences of Antitrust," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226556352, January.
    21. William Shughart & Fred McChesney, 2010. "Public choice theory and antitrust policy," Public Choice, Springer, vol. 142(3), pages 385-406, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.
    2. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Working Papers hal-03460972, HAL.
    3. repec:hal:spmain:info:hdl:2441/65rged1j6o9gl9jvp8a09o3eue is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/7o52iohb7k6srk09n0dcia0po is not listed on IDEAS
    5. Gropper, Daniel M. & Jahera, John S. & Park, Jung Chul, 2013. "Does it help to have friends in high places? Bank stock performance and congressional committee chairmanships," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1986-1999.
    6. Quoc-Anh Do & Yen-Teik Lee & Bang Dang Nguyen, 2013. "Political Connections and Firm Value: Evidence from the Regression Discontinuity Design of Close Gubernatorial Elections," Working Papers hal-03460972, HAL.
    7. Belo, Frederico & Gala, Vito D. & Li, Jun, 2013. "Government spending, political cycles, and the cross section of stock returns," Journal of Financial Economics, Elsevier, vol. 107(2), pages 305-324.
    8. Francis, Bill B. & Hasan, Iftekhar & Zhu, Yun, 2021. "The impact of political uncertainty on institutional ownership," Journal of Financial Stability, Elsevier, vol. 57(C).
    9. Alnahedh, Saad & Alhashel, Bader, 2024. "Firm executive political leanings, Washington, and stock market returns," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 476-491.
    10. Kim, Chansog (Francis) & Pantzalis, Christos & Chul Park, Jung, 2012. "Political geography and stock returns: The value and risk implications of proximity to political power," Journal of Financial Economics, Elsevier, vol. 106(1), pages 196-228.
    11. repec:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09n0dcia0po is not listed on IDEAS
    12. repec:hal:spmain:info:hdl:2441/7o52iohb7k6srk09n0dcia0po is not listed on IDEAS
    13. Cohen, Lauren & Diether, Karl & Malloy, Christopher, 2013. "Legislating stock prices," Journal of Financial Economics, Elsevier, vol. 110(3), pages 574-595.
    14. Brown, Jeffrey R. & Huang, Jiekun, 2020. "All the president's friends: Political access and firm value," Journal of Financial Economics, Elsevier, vol. 138(2), pages 415-431.
    15. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    16. Alan D. Jagolinzer & David F. Larcker & Gaizka Ormazabal & Daniel J. Taylor, 2020. "Political Connections and the Informativeness of Insider Trades," Journal of Finance, American Finance Association, vol. 75(4), pages 1833-1876, August.
    17. Croci, Ettore & Pantzalis, Christos & Park, Jung Chul & Petmezas, Dimitris, 2017. "The role of corporate political strategies in M&As," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 260-287.
    18. Jürgen Huber & Michael Kirchler, 2013. "Corporate campaign contributions and abnormal stock returns after presidential elections," Public Choice, Springer, vol. 156(1), pages 285-307, July.
    19. Narayan, Paresh Kumar & Narayan, Seema, 2021. "Do opinion polls on government preference influence stock returns?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    20. Yi, Shangkun & Wang, Jian & Wang, Xiaoting & Feng, Hongrui, 2022. "CEO political connection and stock sentiment beta: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    21. Mehmet I. Canayaz & Jose V. Martinez & Han N. Ozsoylev, 2015. "Is the revolving door of Washington a back door to excess corporate returns?," Koç University-TUSIAD Economic Research Forum Working Papers 1507, Koc University-TUSIAD Economic Research Forum.
    22. Shen, Chung-Hua & Lin, Chih-Yung, 2015. "Betting on presidential elections: Should we buy stocks connected with the winning party?," The Quarterly Review of Economics and Finance, Elsevier, vol. 56(C), pages 98-109.
    23. Meng, Yun & Pantzalis, Christos & Park, Jung Chul, 2023. "Why corporate political geography matters for stock returns," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 71-96.
    24. Stephan, Andrew P. & Walther, Beverly R. & Wellman, Laura A., 2021. "Profiting from connections: Do politicians receive stock tips from brokerage houses?," Journal of Accounting and Economics, Elsevier, vol. 72(1).

    More about this item

    Keywords

    G14; K42; Enforcement of law; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:157:y:2013:i:1:p:41-50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.