On political connectedness and the arrest of Ivan Boesky

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.