Political Connections and Stock Returns: The Case of 2019 Thai General Election
Main Article Content
Abstract
Political connections may increase the value of a company, its stock price, and consequently its stock returns. This study aims to assess the connection between political connections and stock returns in Thailand. The stock returns of companies listed on the Stock Exchange of Thailand and are included in the SET100 index were computed, and consequently incorporated into an event study in which the 2019 Thai general election serves as the event. The abnormal returns of companies connected with members of parliament elected under the first-past-the-post system do not differ from those of firms not connected around the election date but significantly differ when the results are officially announced. Those of companies connected with party-list members of parliament are slightly higher than those of firms not connected around the election but not different when the results are announced. They only differ when divided into the government and the opposition. Those of companies with connections to candidates for prime minister are significantly higher than those of companies without connections. This could suggest that connections with candidates for prime minister are more important for business operations than connections with members of parliament. The difference, however, dissipates after a few days, possibly due to political uncertainty after the election.
Article Details
References
Acemoglu, D., Johnson, S., Kermani, A., Kwak, J. & Mitton, T. (2013). The value of connections in turbulent times: Evidence from the United States. Journal of Financial Economics, 121(2), 368–391.
Akey, P. (2015). Valuing changes in political networks: Evidence from campaign contributions to close Congressional elections. Review of Financial Studies, 28(11), 3188–3223.
Ang, J. S., Ding, D. K., & Thong, T. Y. (2013). Political connection and firm value. Asian Development Review, 30(2), 131–166.
Chancharat, S., Detthamrong, U., & Chancharat, N. (2019). Board structure, political connection and firm performance: Evidence from Thailand. International Journal of Business and Society, 20(3), 1096–1111.
Charumilind, C., Kali, R., & Wiwattanakantang, Y. (2006). Connected lending: Thailand before the financial crisis. The Journal of Business, 79(1), 181–218.
Chen, C. R., Li, Y., Luo, D., & Zhang, T. (2017). Helping hands or grabbing hands? An analysis of political connections and firm value. Journal of Banking & Finance, 80, 71–89.
Civilize, S., Wongchoti, U., & Young, M. (2015). Political connection and stock returns: A longitudinal study. The Financial Review, 50, 89–119.
Coulomb, R. & Sangnier, M. (2014). The impact of political majorities on firm value: Do electoral promises or friendship connections matter?. Journal of Public Economics, 115, 158–170.
Do, Q.-A., Lee, Y.-T., & Nguyen, B. D. (2015). Political connections and firm value: Evidence from the regression discontinuity design of close Gubernatorial elections. CEPR Discussion Paper No. DP10526.
Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4), 1095–1102.
Harymawan, I., Nasih, M., Madyan, M., & Sucahyati, D. (2019). The role of political connections on family firms’ performance: Evidence from Indonesia. International Journal of Financial Studies, 7(4), 55.
Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value?. The Review of Financial Studies, 22(6), 2331–2360.
Green, C. P. & Homroy, S. (2020). Bringing connections onboard: The value of political influence. IZA Discussion Papers 13392, Institute of Labor Economics (IZA).
Johnson, S. & Mitton, T. (2003). Cronyism and capital controls: evidence from Malaysia. Journal of Financial Economics, 67(2), 351–382.
Lehrer, N. D. (2018). The value of political connections in a multiparty parliamentary democracy: Evidence from the 2015 elections in Israel. European Journal of Political Economy, 53, 13–58.
Wu, J., Li, S., & Li, Z. (2013). The contingent value of CEO political connections: A study on IPO performance in China. Asia Pacific Journal of Management, 30(4), 1087–1114.
Wu, W., Wu, C., & Rui, O. M. (2012). Ownership and the value of political connections: Evidence from China. European Financial Management, 18(4), 695–729.