The Effect of Political Risk on Shareholder Value and the Mitigating Role of Corporate Social Responsibility (CSR)

25 Pages Posted: 12 May 2020

See all articles by Pattanaporn Chatjuthamard

Pattanaporn Chatjuthamard

Sasin GIBA

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Manohar Singh

Southern Connecticut State University

Pattarake Sarajoti

Sasin GIBA of Chulalongkorn University

Date Written: April 18, 2020

Abstract

We investigate the effect of political risk on shareholder value, using an event study and a novel measure of firm-level political risk recently developed by Hassan et al. (2019). We exploit the guilty plea of Jack Abramoff, a well-known lobbyist, on January 3, 2006, as an exogenous shock that made lobbying less effective and less useful in the future, depriving firms of an important tool to reduce political exposure. Our results show that the market reactions are significantly more negative for firms with more political exposure. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis, and Oster’s (2019) method for testing coefficient stability. Finally, we find that the adverse effect of political risk on shareholder value is substantially mitigated for firms with strong social responsibility, consistent with the risk mitigation hypothesis.

Keywords: political risk, firm risk, corporate social responsibility, CSR, shareholder wealth, event study

JEL Classification: M14, G34

Suggested Citation

Chatjuthamard, Pattanaporn and Jiraporn, Pornsit and Singh, Manohar and Sarajoti, Pattarake, The Effect of Political Risk on Shareholder Value and the Mitigating Role of Corporate Social Responsibility (CSR) (April 18, 2020). Available at SSRN: https://ssrn.com/abstract=3579209 or http://dx.doi.org/10.2139/ssrn.3579209

Pattanaporn Chatjuthamard

Sasin GIBA ( email )

Bangkok
Thailand

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Manohar Singh

Southern Connecticut State University ( email )

New Haven, CT 06515
United States

Pattarake Sarajoti

Sasin GIBA of Chulalongkorn University ( email )

Sasa Patasala Building
Phyathai Road
Bangkok, 10330
Thailand
662-218-4098 (Phone)
662-215-3797 (Fax)

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