Publication Type

Journal Article

Version

Publisher’s Version

Publication Date

8-2013

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.

Keywords

political connection, corporate governance, firm value, Singapore

Discipline

Asian Studies | Business Law, Public Responsibility, and Ethics | Corporate Finance

Research Areas

Finance

Publication

Asian Development Review

Volume

30

Issue

2

First Page

131

Last Page

166

ISSN

0116-1105

Publisher

Asian Development Bank

Creative Commons License

Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.

Additional URL

https://openaccess.adb.org/handle/11540/1620