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Government power and the value of political connections: Evidence from Covid-19 economic lockdowns

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  • Tee, Chwee-Ming
  • Wong, Wai-Yan
  • Hooy, Chee-Wooi

Abstract

The value of political connection is driven by economic power, rather than the political power of the government per se. We examine this with Malaysia's Covid-19 economic lockdowns where the government gained unprecedented economic power. Changes of 3 governments over 2020-2021 allow us to verify whether changes in political power per se creates value. Our event study shows politically connected (PCON) firms outperform non-PCON firms during total economic lockdowns. However, after the easing of restrictions, investors reallocate their investments to non-PCON firms. Lastly, changes in government do not affect the value of PCON firms because there is no election mandate.

Suggested Citation

  • Tee, Chwee-Ming & Wong, Wai-Yan & Hooy, Chee-Wooi, 2022. "Government power and the value of political connections: Evidence from Covid-19 economic lockdowns," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000344
    DOI: 10.1016/j.frl.2022.102706
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    Cited by:

    1. Eugenie Sin Sing Tan & Shaun Ashley Fung Xian Chin & Manimeyapan S. Palaniappan Sathapan & Astrid Disimond Dewi & Farahnaz Amini & Normina Ahmad Bustami & Pui Yee Tan & Yu Bin Ho & Chung Keat Tan, 2023. "Mental Health and the COVID-19 Pandemic: Observational Evidence from Malaysia," IJERPH, MDPI, vol. 20(5), pages 1-14, February.
    2. Ganguly, Kousik & Mishra, Ajay Kumar & Parikh, Bhavik, 2023. "Do Political connections influence investment decisions? Evidence from India," Finance Research Letters, Elsevier, vol. 52(C).
    3. Tee, Chwee-Ming & Hooy, Chee-Wooi, 2023. "Political connections and economic policy uncertainty: A global evidence," Finance Research Letters, Elsevier, vol. 51(C).
    4. Tee, Chwee-Ming & Wong, Wai-Yan & Hooy, Chee-Wooi, 2023. "Financial sanctions and global stock market reaction: Evidence from the Russia-Ukraine conflict," Finance Research Letters, Elsevier, vol. 58(PB).

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    More about this item

    Keywords

    Government power; Political connection; Political crisis; Covid-19 pandemic;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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