Open AccessPolitically Connected Firms and Their Stock Return Volatility during High-Visibility Events: Evidence from Malaysia
Author(s) -
WaiYan Wong,
CheeWooi Hooy
Publication year - 2021
Publication title -
international journal of business and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.236
H-Index - 15
ISSN - 1511-6670
DOI - 10.33736/ijbs.4314.2021
Subject(s) - volatility (finance) , surprise , volatility swap , stock (firearms) , economics , politics , event study , volatility risk premium , financial economics , abnormal return , monetary economics , business , volatility smile , stock exchange , implied volatility , finance , political science , mechanical engineering , psychology , social psychology , paleontology , context (archaeology) , law , engineering , biology
This study investigates the relationship between political connection and firm stock volatility. We examine whether stock return volatility of politically connected firms differ from non-connected firms during four events. These four events are general election, change of leadership, announcement of government budget, and announcement of policies by the government. This paper uses a volatility event study technique to calculate the abnormal stock return volatility during the four events. We use the data of public-listed firms in Malaysia from 2002 to 2013. The result shows that political connection is associated with higher stock volatility in certain events. They appear to be the most volatile in the event of general election and least volatile during budget announcement. Besides budget announcement, the other three events showed a stronger volatility as they are considered as more of a surprise announcement rather than scheduled announcement. The paper adds to a limited body of literature investigating the relationship between political connection and market behavior in Malaysia and hopes to show that political connection can impact the stock return volatility of firms during high-visibility events in Malaysia.