Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto

Int. J. Financial Stud. 2019, 7, 49; doi:10.3390/ijfs7030049

16 Pages Posted: 21 Apr 2020

See all articles by Iman Harymawan

Iman Harymawan

Universitas Airlangga

Brian Lam

affiliation not provided to SSRN

Mohammad Nasih

affiliation not provided to SSRN

Rumayya Rumayya

Airlangga University

Date Written: September 11, 2019

Abstract

This study examines the relationship between firm-level political connections and stock price crash risk in Indonesia. It employs the difference-in-difference design to deal with the self-selection bias issue regarding the choice of the firms to become a politically connected firm. We use the sudden resignation of the former President of Indonesia, Suharto, to show that politically connected firms are associated with lower stock price crash risk and that the risk for these politically connected firms increased after Suharto resigned. Furthermore, we found evidence that these negative associations are more pronounced in firms with more complex firm structures.

Keywords: politically connected firms, stock price crash risk, complex firm structure

Suggested Citation

Harymawan, Iman and Lam, Brian and Nasih, Mohammad and Rumayya, Rumayya, Political Connections and Stock Price Crash Risk: Empirical Evidence from the Fall of Suharto (September 11, 2019). Int. J. Financial Stud. 2019, 7, 49; doi:10.3390/ijfs7030049, Available at SSRN: https://ssrn.com/abstract=3561514

Iman Harymawan (Contact Author)

Universitas Airlangga ( email )

JL. Airlangga no 4
Surabaya, East Java 60286
Indonesia

HOME PAGE: http://www.feb.unair.ac.id

Brian Lam

affiliation not provided to SSRN

Mohammad Nasih

affiliation not provided to SSRN

Rumayya Rumayya

Airlangga University ( email )

Jl. Darmawangsa Dalam 2
Surabaya, 60286
Indonesia

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