On the Challenge to Competitive Authoritarianism and Political Patronage in Malaysia

In March 2008, Malaysia’s political landscape was shaken by election results showing that the Barisan Nasional had won less than two thirds of the parliamentary seats and lost five states to the opposition. A two-thirds supermajority had been seen as a sacred threshold for the coalition to ensure its continued legitimacy. We conjecture that the 2008 election represented a challenge to the competitive authoritarian regime and that this had direct effects on firms with ties to the ruling coalition. Our empirical results show that firms with political patronage were adversely affected by the electoral outcome. More specifically, firms with close ties to the Barisan Nasional experienced a significant negative value effect. Firms characterized by political patronage also decreased their leverage levels significantly more than other firms after the 2008 election, suggesting that their access to debt capital had become more restricted. Moreover, this effect was mainly driven by changes in long-term debt. These results suggest a significant negative effect on connected firms as the political status quo was challenged in Malaysia.