Government power and the value of political connections: Evidence from Covid-19 economic lockdownsJournal: Finance Research Letters, 2022, 47, Part B, June 2022 Author(s): Chwee-MingTee, Wai-Yan Wong Chee-Wooi Hooy Link: www.sciencedirect.com/science/article/pii/S1544612322000344
The value of political connection is driven by economic power, rather than the political power of the government per se. We examine this with Malaysia's Covid-19 economic lockdowns where the government gained unprecedented economic power. Changes of 3 governments over 2020-2021 allow us to verify whether changes in political power per se creates value. Our event study shows politically connected (PCON) firms outperform non-PCON firms during total economic lockdowns. However, after the easing of restrictions, investors reallocate their investments to non-PCON firms. Lastly, changes in government do not affect the value of PCON firms because there is no election mandate.