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Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto

Author

Listed:
  • Iman Harymawan

    (Department of Accountancy, Universitas Airlangga, Surabaya 60286, Indonesia)

  • Brian Lam

    (Division of Business and Management, BNU-HKBU United International College, Zhuhai 519087, China)

  • Mohammad Nasih

    (Department of Accountancy, Universitas Airlangga, Surabaya 60286, Indonesia)

  • Rumayya Rumayya

    (Department of Economics, Universitas Airlangga, Surabaya 60286, Indonesia)

Abstract

This study examines the relationship between firm-level political connections and stock price crash risk in Indonesia. It employs the difference-in-difference design to deal with the self-selection bias issue regarding the choice of the firms to become a politically connected firm. We use the sudden resignation of the former President of Indonesia, Suharto, to show that politically connected firms are associated with lower stock price crash risk and that the risk for these politically connected firms increased after Suharto resigned. Furthermore, we found evidence that these negative associations are more pronounced in firms with more complex firm structures.

Suggested Citation

  • Iman Harymawan & Brian Lam & Mohammad Nasih & Rumayya Rumayya, 2019. "Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto," IJFS, MDPI, vol. 7(3), pages 1-16, September.
    • Handle: RePEc:gam:jijfss:v:7:y:2019:i:3:p:49-:d:266263
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    References listed on IDEAS

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