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Political Connection and Firm Value

Author

Listed:
  • James S. Ang

    (Professor of Finance at the College of Business, Florida State University)

  • David K. Ding

    (Professor of Finance at the School of Economics and Finance, Massey University, New Zealand and at the Lee Kong Chian School of Business, Singapore Management University)

  • Tiong Yang Thong

    (Lecturer of Finance at the Lee Kong Chian School of Business, Singapore Management University)

Abstract

We study the effect of political connection (PC) on company value in an environment where low PC is due to better institutions and not confounded by favorable social/cultural factors. We find that in Singapore, the only country that fits this description, PC in general adds little to the value of a company. However, in industries that are subject to more stringent government regulations, PC appears to be somewhat important. Robustness checks show that alternative PC variables give rise to similar results, and the addition of control variables do not drastically change the findings. Politically connected firms have higher managerial ownership and tend to be smaller than non-PC firms, rendering them more susceptible to poorer governance practices. We show that the presence of politically connected directors somewhat neutralizes such potential negative effects. PC firms are associated with good governance practices such as nonduality in their chairman and chief executive officer positions and fewer executive directors. © 2013 Asian Development Bank and Asian Development Bank Institute.

Suggested Citation

  • James S. Ang & David K. Ding & Tiong Yang Thong, 2013. "Political Connection and Firm Value," Asian Development Review, MIT Press, vol. 30(2), pages 131-166, September.
  • Handle: RePEc:tpr:adbadr:v:30:y:2013:i:2:p:131-166
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    References listed on IDEAS

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    Cited by:

    1. repec:bbz:fcpbbr:v:15:y:2018:i:4:p317-330 is not listed on IDEAS
    2. repec:eee:pacfin:v:51:y:2018:i:c:p:297-317 is not listed on IDEAS
    3. repec:bla:stratm:v:38:y:2017:i:1:p:114-140 is not listed on IDEAS
    4. Saidatou Dicko, 2016. "The Impact of Political Connections on the Performance and Solvency of Canadian Financial Institutions," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(11), pages 1-11, November.

    More about this item

    Keywords

    political connection; corporate governance; firm value; Singapore;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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