We study the effect of a sovereign credit rating change of one country on the sovereign credit spreads of other countries from 1991 to 2000. We find evidence of spillover effects; that is, a ratings change in one country has a significant effect on sovereign credit spreads of other countries. This effect is asymmetric: positive ratings events abroad have no discernable impact on sovereign spreads, whereas negative ratings events are associated with an increase in spreads. On average, a one-notch downgrade of a sovereign bond is associated with a 12 basis point increase in spreads of sovereign bonds of other countries. The magnitude of the spillover effect following a negative ratings change is amplified by recent ratings changes in other countries. We distinguish between common information and differential components of spillovers. While common information spillovers imply that sovereign spreads move in tandem, differential spillovers are expected to result in opposite effects of ratings events across countries. Despite the predominance of common information spillovers, we also find evidence of differential spillovers among countries with highly negatively correlated capital flows or trade flows vis-á-vis the United States. That is, spreads in these countries generally fall in response to a downgrade of a country with highly negatively correlated capital or trade flows. Variables proxying for cultural or institutional linkages (e.g., common language, formal trade blocs, common law legal systems), physical proximity, and rule of law traditions across countries do not seem to affect estimated spillover effects.

Analysis of a worldwide sample of sudden deaths of politicians reveals a market-adjusted 1.7% decline in the value of companies headquartered in the politician's hometown. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results are particularly pronounced for family firms, firms with high growth prospects, firms in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries.

Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician’s home town, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973 reveals a market adjusted 1.7% decline in the value of connected companies. Our results suggest connections matter in many countries, and that they are more important for family firms, firms with high growth prospects, firms operating in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries. † Both authors are from the Owen Graduate School of Management, Vanderbilt University. We thank the Financial Markets Research Center for financial support, two anonymous referees, Nick Bollen, Ettore Croci, Ray Fisman, Tim Loughran, Paul Malatesta, Maria Teresa Marchica, Tobias Moskowitz (the Editor), Roberto Mura, Joe Peek, Raghu Rau, Jorg Rocholl, Antoinette Schoar, Paul Schultz, Jordan Siegel, Bernard Yeung, and seminar participants at City University (London), Erasmus University (Rotterdam), International Monetary Fund, London School of Economics, Southern Methodist University, Tilburg University, University of Amsterdam, University of Illinois, Vanderbilt University, and at the 2005 HKUST Finance Symposium for insightful comments and suggestions. We thank Zhengfeng Guo for assistance in collecting data on the hometown of the successors of the deceased politicians. Mara Faccio also acknowledges financial support from the Hirtle Callaghan Research Scholar Award.