Journal of Electoral Studies

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Home Issues Backissues Volume 31, No.1 Do Directorate Political Connections and/or Political Donations Affect Firm Value?

Do Directorate Political Connections and/or Political Donations Affect Firm Value?

Woan-Yuh Jang and Kai-Wen Chang)
2011 / 05
Volume 18, No.1

pp.139-174
10.6612/tjes.2011.18.01.139-174
Paper

Abstract

The research uses the hand-gathered data that details the political background of all directors on the boards of companies listed in the Taiwan Stock Exchange (TSE). The companies are divided into three groups: companies connected to the Pan-Blue Coalition, companies connected to the Pan-Green Coalition, and the others. This article looks at two different events. The first is the 2008 president election on March 22 incorporating the factor of political donations, and the second is the announcement of politically connected director appointment. The study examines the effects of political network linkages on firm value. The analysis shows that companies connected to the Pan-Blue Coalition exhibit a positive and significant cumulative abnormal return when the Pan-Blue Coalition wins the 2008 president election. Conversely, companies connected to the Pan- Green Coalition suffer a negative cumulative abnormal return. In addition, the companies which donate to both Pan-Blue and Pan-Green Coalitions experience a cumulative abnormal return significantly greater than those only to the Pan-Blue Coalition. This article also demonstrates that the stock market displays a positive response following the announcement of the appointment of directors connected to the Pan-Blue Coalition. However, there is no significant abnormal return on the stock market when news of directors connected to the Pan-Green Coalition entering the boards is announced. Furthermore, the difference between the two groups fails to be significant.

Keywords

president election

political relationships

directorate political connections

political donations

event study methodology