Political Connection and Firm Value

44 Pages Posted: 27 Sep 2011

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

David K. Ding

Singapore Management University - Lee Kong Chian School of Business

Tiong Yang Thong

Singapore Management University - Lee Kong Chian School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2011

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 regulation, 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. PC 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 PC directors somewhat neutralizes such potential negative effects. PC firms are associated with good governance practices such as non-duality in their Chairman and CEO and fewer executive directors.

Keywords: Political connection, corporate governance, firm value, Singapore

JEL Classification: G32, G34, O53

Suggested Citation

Ang, James S. and Ding, David K. and Thong, Tiong Yang, Political Connection and Firm Value (May 2011). Massey U. College of Business Research Paper No. 31. Available at SSRN: https://ssrn.com/abstract=1934346 or http://dx.doi.org/10.2139/ssrn.1934346

James S. Ang (Contact Author)

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

David K. Ding

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore, 178899
Singapore
+65 6828-0245 (Phone)

Tiong Yang Thong

Singapore Management University - Lee Kong Chian School of Business ( email )

50 Stamford Road
Singapore 178899
Singapore

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