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Do firms harvest from political connections during general elections? Case of Pakistan

Author

Listed:
  • Ayesha Ashraf
  • M. Kabir Hassan
  • Khurram Abbas
  • Qamar Uz Zaman

Abstract

Purpose - This paper aims to examine the impact of general elections on the stock returns of the politically connected group affiliated firms of Pakistan. Design/methodology/approach - This study uses the market model to assess the impact of political connections (PCs) on abnormal stock returns, before and after election events. We have used share price data of non-financial firms of Pakistan for the years 2008-2013. Findings - It has been found that behavior of cumulative average abnormal returns (CAAR) is significantly different for standalone and politically connected group affiliated firms. The results reveal that CAARs of politically connected group affiliated firms have experienced less deviation as compared to stand alone firms. Therefore, it is argued that politically connected group firms may reduce the impact of political uncertainty on stock returns in comparison to stand alone firms. Practical implications - This study is helpful for policy regulators of Pakistan to devise appropriate policies to maintain a level playing field for politically connected and standalone firms. Originality/value - This study provides a new dimension to understand the role and association of PCs and general elections with stock markets returns.

Suggested Citation

  • Ayesha Ashraf & M. Kabir Hassan & Khurram Abbas & Qamar Uz Zaman, 2020. "Do firms harvest from political connections during general elections? Case of Pakistan," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 27(1), pages 258-273, February.
    • Handle: RePEc:eme:jfcpps:jfc-02-2019-0022
    DOI: 10.1108/JFC-02-2019-0022
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    Citations

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    Cited by:

    1. Mosab I. Tabash & Musla Valappil & Uzma Iqbal & Umar Farooq, 2023. "The Impact of General Election 2018 on Stock Prices: Evidence from Emerging Economy," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(4), pages 90-113, December.

    More about this item

    Keywords

    Political connections; Stock returns; Group affiliation; General elections; D72; P16; P26; C32; P43;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • P26 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Property Rights
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance

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