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Political connections, ownership structure, and financial institution failure

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  • Polsiri, Piruna
  • Jiraporn, Pornsit

Abstract

Thailand was at the origin of the Asian financial crisis of 1997. Our research seeks to understand what economic and political factors contributed to the collapses of Thailand's financial institutions during the crisis. The distinctive feature of our model is that it incorporates variables for ownership structure as well as political connections in addition to the traditional financial variables. Foreign-owned financial institutions were less likely to fail. The probability of failure is also inversely related to the control rights of the largest shareholder. Finally, there is evidence of the too-big-to-fail (TBTF) policy. Our results are important because they demonstrate that traditional models, especially when applied to emerging economies, can be enhanced by incorporating variables related to ownership structure as well as political connections.

Suggested Citation

  • Polsiri, Piruna & Jiraporn, Pornsit, 2012. "Political connections, ownership structure, and financial institution failure," Journal of Multinational Financial Management, Elsevier, vol. 22(1), pages 39-53.
    • Handle: RePEc:eee:mulfin:v:22:y:2012:i:1:p:39-53
    DOI: 10.1016/j.mulfin.2012.01.001
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    4. Deng, Yuping & Wu, Yanrui & Xu, Helian, 2019. "Political connections and firm pollution behaviour: An empirical study," BOFIT Discussion Papers 4/2019, Bank of Finland Institute for Emerging Economies (BOFIT).
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    6. Yuping Deng & Yanrui Wu & Helian Xu, 2020. "Political Connections and Firm Pollution Behaviour: An Empirical Study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 867-898, April.
    7. Hidaya Al Lawati, 2022. "Politically Connected Firms and Forward-Looking Disclosure in the Era of Oman Vision 2040," JRFM, MDPI, vol. 15(6), pages 1-22, May.
    8. Al-Hadi, Ahmed & Taylor, Grantley & Al-Yahyaee, Khamis Hamed, 2016. "Ruling Family Political Connections and Risk Reporting: Evidence from the GCC," The International Journal of Accounting, Elsevier, vol. 51(4), pages 504-524.

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    More about this item

    Keywords

    Concentrated ownership structure; Political connections; Failure prediction model; Financial sector fragility; Early warning systems; East Asian financial crisis;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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