Political connection, government policy, and investor trading: Evidence from an emerging market

Chih-Yung Lin, Po-Hsin Ho, Chung-Hua Shen and Yu-Chun Wang

International Review of Economics & Finance, 2016, vol. 42, issue C, 153-166

Abstract: This study investigates whether political connection (PC), government policy (GP), or both affect stock returns before and after the Taiwanese 2008 presidential election. We also examine whether the two effects influence the five types of investor trading during the election. Past studies have separately focused on either the PC or the GP effect, whereas this study considers both effects. Specifically, we consider five types of investors, namely, foreign investors, security investment trust companies (INVTRUSTs), security dealers, board of directors and supervisors, and individual investors. We find that firms connecting only with the winning party exhibit positive abnormal returns, and only INVTRUSTs increase the shareholdings of these firms (PC effect). Our results do not support the GP effect alone. Instead, we identify that firms with joint PC and GP effects have the abnormal returns during election periods.

Keywords: Political connection; Government policy; Stock returns; Investor trading; Presidential election (search for similar items in EconPapers)
JEL-codes: G11 G14 G18 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:42:y:2016:i:c:p:153-166

DOI: 10.1016/j.iref.2015.09.008

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