Political Connections, Institutional Monitoring and Stock Price Crash Risk: Evidence from Malaysian Firms

This paper examines whether politically connected (POLCON) firms are associated with stock price crash risk, and if so, whether institutional ownership can moderate the association between POLCON firms and stock price crash risk. In addition, it investigates whether institutional domiciles are associated with stock price crash risk, particularly in POLCON firms. Using a dataset of Malaysian firms for the period 2002-2012, this study shows that POLCON firms are associated with higher risk of stock price crashes. However, the positive association between POLCON and stock crashes is attenuated by higher institutional ownership. The finding suggests that the association is more pronounced for firms with higher local institutional ownership. Additional evidence suggests that institutional domicile plays an important role in mitigating risk of stock crashes in POLCON firms. Finally, only connected firms identified on the basis of personal or informal business ties to the ruling elite, are positively associated with stock price crash risk, in contrast with GLCs

کلیدواژه ها:

Political Connections ، Institutional Investors ، Institutional Domiciles ، Stock Price Crash Risk