In the early hours of Nov. 8, 2000, the vice president of the United States, Al Gore, was preparing to deliver his concession speech to a sodden crowd in Nashville, Tenn. But then the messages began to arrive on Gore's pager, suggesting that perhaps he wasn't behind at all. Having previously conceded, informally and in private, Gore called Bush again to deliver the message that he'd changed his mind. (Oh, to have eavesdropped on that conversation.)
Nov. 8 was not the only pivotal date in the race. On Dec. 8, the Florida Supreme Court ordered a recount in certain counties, raising the chance that Gore would win. On Dec. 13, after the federal Supreme Court halted the recount, Gore conceded to Bush.
Because these sudden decisions were hard to anticipate, they provide an excellent test of the value of political connections to listed companies. If politics means profit, a "Republican" company should have taken a knock on Dec. 8 but surged on Dec. 13, when the Republican victory was confirmed.
A recent study by financial economists Eitan Goldman, Jongil So, and Jörg Rocholl found exactly that: Republican companies beat the market by 3 percent over the week after Bush's victory was assured; Democratic companies lagged almost as badly. Goldman, So, and Rocholl defined "Republican" companies as those with board members who had previously served as Republican senators or congressmen or members of a Republican administration, and with no Democratically connected board members.
Another example: In May 2001, Sen. Jim Jeffords abruptly left the Republican Party to become an independent senator. That decision handed control of the Senate and its committees to the Democratic Party. Seema Jayachandran, an economist at UCLA, studied the market's reaction and concluded that it was bad news for the share price of large firms that had donated to the Republicans. The gains to Democratic donors were not as large, so the total effect was to wipe $84 billion off the price of U.S. shares.
Broadly, the same story seems to hold true internationally, and Thomas Ferguson, a political scientist, and Hans-Joachim Voth, an economist, have shone a light on a ghoulish example. Adolf Hitler was appointed chancellor of Germany at the end of January 1933 as head of a coalition government. Thanks to the Reichstag fire, a snap election, and a constitutional change, the Nazis had a stranglehold on power by the end of March. The stock market valuation of the (mostly large) companies that tied their fortunes to the Nazis surged between January and March 1933.
The question, of course, is why these political connections are valuable. Innocent explanations are possible. Perhaps the intelligence and energy that propelled Tony Blair and Al Gore to high office would have justified their later work with, respectively, JPMorgan and Apple, irrespective of any political connections. Or perhaps they are of ornamental value, like a head office draped in marble.
A less comforting possibility is that political connections give companies access to the regulations that suit them or to juicy government procurement contracts. Goldman, Rocholl, and So have found evidence that such contracts do seem to flow to companies affiliated with the party in power. If so, that is a disgrace, if not entirely a surprise.
But not every study finds that political connections are a sure route to profit. Economists Ray Fisman, Julia Galef, and Rakesh Khurana, and epidemiologist David Fisman, have tried to estimate the value of personal ties to Dick Cheney. One strategy was studying the share price of Halliburton—where Cheney was CEO from 1995 to 1999—when news broke of the vice president's heart problems. The estimated value of personal ties to Cheney? Zero—"precisely estimated." It would be nice to feel sure of that.