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Hurting without hitting: The economic cost of political tension

Yinghua He, Ulf Nielsson () and Yonglei Wang

Journal of International Financial Markets, Institutions and Money, 2017, vol. 51, issue C, 106-124

Abstract: Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan’s sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests, we show that this economic penalty is targeted at pro-independence firms that are economically exposed to mainland China via either investments or exports.

Keywords: Political tension; Political connections; China; Taiwan (search for similar items in EconPapers)
JEL-codes: F51 G14 G15 H77 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Hurting without Hitting: The Economic Cost of Political Tension (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:51:y:2017:i:c:p:106-124

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