Jeremy Siegel on the Impact of the US 2006 Election

Jeremy Siegel is a finance professor at the Wharton School of Business who heads their Executive Education Securities Industry Institute. He was recently interviewed by the Knowledge@Wharton staff about his perceptions concerning the impact of last week's elections.

Overall, he believes that market didn't take a nose dive because the technology stocks did well and tend to support Democratic candidates. Another reason Siegel gave was that the polls said that the Senate races would be tight and possibly would shift to the Democrats, so the market was ready for it.

What was the most interesting was the dialog about how the US elections could impact trade and relationships in India and China. Here's a snippet:

Knowledge@Wharton: Do you think that these elections will affect our relationships with [markets such as] India and China?

Siegel: I hope they don't. The Democrats have talked tougher on loss of jobs and outsourcing. They've talked tougher on Wal-Mart, for instance -- you know, the firms that do so much business with China -- and that is a concern, I think. However, one has to remember that we still have a Republican President for two more years, and certainly the Democrats do not have enough votes for a veto over-ride. I don't think that on any real trade issue, that puts any high restrictions on the trade.

To read the interview, click here. If you want an audio version, go here to download. Windows media or Real Player required to open and play the file.

Tags: 2006 Congressional Elections, international political economy, China, India, Jeremy Siegel, Wharton School of Business, u2iperg

Iowa Electronic Markets

The Tippie School of Business at the University of Iowa hosts a trading site called Iowa Electronic Markets (IEM). It is used for pedagogy to simulate what real markets do, and those not in academia can sign up for accounts and actually trade with real dollars.

The prices are collected all day, up until 11:59pm. Thus, one sees the outcome of the Congressional races on November 7th, it is no wonder that IEM predicted correctly the outcome. Here's the graph (click on it to enlarge):



















Red Republican Senate and House seats gain

Green Republican House hold and Democratic Senate seats gain

Black Democratic House gain and Republican Senate seats hold

Blue Democratic Senate and House seats gain




Still, it is interesting, in looking at political economy in the US.



Tags: Congressional Races 2006, US political economy, Iowa Electronic Markets, political market predictions, u2iperg

South Africa and FDI

In today's HBS Working Knowledge Newsletter, Martha Legace interviews HBS Assistant Professor Eric Werker about his recent research about FDI in South Africa after the fall of apartheid. Werker discovered that the FDI was around 2/3 less than other emerging markets, thus our conventional thinking may be challenged.

Werker suggests that perhaps there were two economies, not just one emerging one. To borrow an excerpt from the interview:

When the economy opened up following the end of apartheid and the end of sanctions, these conglomerates shed their non-core assets—which left them cash-rich. What resulted remained fairly concentrated industries, but the companies weren't necessarily the inefficient companies that had characterized the apartheid era.

So South African firms had money to invest. They also had a large market share within their industry; and this, of course, wouldn't be a great environment for someone to go in and set up a new shop. If there are three or four firms sharing an industry, they're probably making money and if you were to come in and undercut on cost, for example, you would have to face the potential retaliatory measures of the stalwarts of the industry.

And with their cash from shedding the non-core assets, South African firms had begun themselves to look for new opportunities.

Read the rest of the interview here.

Tags: FDI, South Africa, emerging markets, international political economy, Eric Werker, HBS Working Knowledge, u2iperg

Do Electoral Rules Affect Government Spending in Parliamentary Democracies?

Today, we welcome a guest blogger, Brett Graham, who is giving u2IPERG readers a report on the latest seminar. Welcome Brett!

On October 20th at UIUC College of Business, Professor Gerard Roland from UC, Berkeley gave a presentation entitled, "Electoral Rules and Government Spending in Parliamentary Democracies", sponsored by the newly formed interdisciplinary group, U2IPERG (University of Illinois International Political Economy Group).



(editor's note: Professor Gerard's photo is seen to the right, courtesy of UCB)

Recent empirical work has shown that proportional election rules are associated with larger government spending than majoritarian electoral rules. There has also been significant theoretical research showing that coalitional governments tend to spend more than single party governments - the so called common pool problem.

Using a model of probabilistic voting and office motivated candidates, Roland and his co-authors, Torsten Persson and Guido Tabellini, fill in the missing link. In their model electoral rules only effect government spending indirectly, through the impact of electoral rules on the composition of government. The key assumption that drives these results is that voters cannot discriminate between different factions in a single party government but can do so in a coalitional government. As a result there are electoral conflicts in a coalitional government leading to an "electoral common pool problem".

Empirical support is found for the key implications of their model, that proportional election rules indirectly induce more government spending.

To read the entire paper, go here (pdf file).

Brett Graham is a UIUC doctoral student in Economics.

Tags: parliamentary rules, government spending, common pool, international political economy, u2IPERG, UIUC, University of Illinois, Torsten Persson, Guido Tabellini, Gerard Roland, UC-Berkeley

Does the Death of Politicially Tied Board Member Impact a Company's Stock Price?

On September 15th at UIUC's College of Business, Vanderbilt Professor Mara Faccio gave a presentation entitled, "Sudden Deaths: Taking Stock of Political Connections", sponsored by the newly formed interdisciplinary group, U2IPERG (University of Ilinois International Political Economy Group) and CIBER, to a full house on sunny Friday afternoon. (Photo Credit: Natayla Shipachova, UIUC Doctoral Student)

Based on the growing literature that points out avenues in which politically connected individuals can benefit companies, Professor Faccio, with co-author Professor David Paisley studied 206 companies world wide who they could they identify as having corporate board members with political ties from 1973-2004. This quest was to answer the following, according to her Powerpoint presentation (submitted to BEL by Professor Paul Vaaler of the BA department):

* How valuable are corporate political ties? * Do geographic ties matter? Or do only personal and family ties count? Does the value of political connections depend on the strength of the relationship? *Do connections simply result in transfers of resources among different agents?

Examples:

Florida Governor Lawton Chiles was an “original investor in Red Lobster restaurants.”

Baroness Brigstocke (of the UK House of Lords) was connected to Westminster Health Care Holdings Plc, since her husband Lord Griffiths was chairman of that company.

French Senator Claude Cornac was labeled as connected to Renault and Gas de France because of prior directorships.

Pamela Harriman, a Democrat, was a British aristocrat who was "very familiar" with many men in political circles, including Averell Harriman, diplomat and millionaire spouse.

Professor Faccio concluded the following from looking at press releases via Factiva and stock prices via Datastream and Worldscope (directly borrowed from her presentation):

Political ties, identified from the (common) location of a company’s headquarters and the city of the deceased politician, are particularly valuable for shareholders..

--Average price drop of -1.93% around the death of the politician for a sample of 7,080 companies
--Comparisons with previous studies suggest the value of political connections has previously been underestimated
--The price drop is even larger for those companies that are more likely to have stronger political links

Afterward, Professor Faccio met with some students who are interested in international political economy and strategy as seen in the picture above.

There will be more monthly U2IREG seminars this fall. Stay tuned.

Tags: u2iperg, political economy, board governance, stock pricing, dead politicians, Mara Faccio, University of Illinois, Vanderbilt University