Coups, Corporations, and Classified Information

Arindrajit Dube, Ethan Kaplan and Suresh Naidu , Quarterly Journal of Economics 126(3) , 1375-1409 , August 2011.

We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from U.S.-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over 16 days. Precoup authorizations accounted for a larger share of stock price increases than the actual coup events themselves. There is no effect in the case of the widely publicized, poorly executed Cuban operations, consistent with abnormal returns to coup authorizations reflectingcredibleprivateinformation. We also introduce two new intuitive and easy to implement nonparametric tests that do not rely on asymptotic justifications.

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