The Effect of Fiscal Policy Announcements on Politically Connected Firms in Malaysia: An Event Study

Wai-Yan Wong ()
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Wai-Yan Wong: Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Malaysia.

Capital Markets Review, 2025, vol. 33, issue 1, 75-86

Abstract: Research Question: To examine the effect of fiscal policy announcements on politically connected firms (PCON) in Malaysia. Motivation: There are very limited investigations done to assess the effects of fiscal policy on the stock market returns in emerging markets. The macroeconomic effects of the fiscal policy, including its implications on the stock market remain poorly understood in the context of emerging markets. Idea: The paper aims to examine if fiscal policy affects stock market returns as previous studies have found that monetary policies affect stock market returns. Data: The sample consists of 376 politically connected and non-connected firms from the year 2002 to 2017. Method/Tools: The event study methodology is used to measure cumulative abnormal returns while the ordinary least square estimation is used to test the hypothesis. Larger event window period is also used to further test the reliability of the findings. Findings: The paper finds that the market responded most favorably towards government-linked companies during the off-budget announcements but not during the budget announcements. Contributions: This article examines how markets perceive various types of politically connected firms differently during budget and off-budget policy announcements. While these policies often require large monetary value, not many studies have focused on this area. Therefore, the paper contributes towards the understanding of these announcements on how they might affect the market, particularly towards PCON. This study also separates PCON into different categories to further deepen our understanding towards market perception towards different types of connection.

Keywords: Fiscal policy; Malaysia; event study; political connection. (search for similar items in EconPapers)
JEL-codes: D72 E62 G14 (search for similar items in EconPapers)
Date: 2025
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