Examining Political Connections to Study Institutional Change: Evidence from Two Unexpected Election Outcomes in South Korea
The World Economy, Vol. 42, No. 4, April 2019, pp. 1152-1179
44 Pages Posted: 2 May 2019
Date Written: April 7, 2019
We argue that the analysis of multiple political connections in an event study framework can improve the study of institutional change. Based on a unique dataset of multiple political relationships of 4,936 South Korean board of director members, we show that the large business conglomerates, the chaebol, did not benefit from the unexpected conservative election victories in the 2012 South Korean parliamentary and presidential elections. By contrast, personal connections to candidates and to the opposition party were still considered to matter for small firms. Our findings suggest that Korea’s political economy has evolved into a hybrid regime in which the political power of large multinational corporations is limited, but the influence of political connections is still relevant for smaller firms. The corruption scandal that led to the impeachment of President Park in 2017 and the long-term development of market capitalization appear to be congruent with the results of our study.
Keywords: Political Connections, Networks, Rent-Seeking, Corruption, Institutional Change, Event Study Methodology, South Korea, Chaebol, Political Economy
JEL Classification: D27, G14, N2
Suggested Citation: Suggested Citation