Political connection types and investors’ perceived risk

Authors

  • Mas Nordiana Rusli Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 Bangi Selangor MALAYSIA
  • Norman Mohd Saleh Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 Bangi Selangor MALAYSIA
  • Hafizuddin-Syah B.A.M Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 Bangi Selangor MALAYSIA
  • Mohamat Sabri Hassan Faculty of Economics and Management Universiti Kebangsaan Malaysia 43600 Bangi Selangor MALAYSIA

Keywords:

political connection, perception of risk, cost of equity, systematic risk, information asymmetries

Abstract

This study examines the pervasive political influence in Malaysian businesses, specifically the investors’ perceived risk of political connection. A sample of 312 firm-year observations between 2014 to 2017 reveals that politically connected Malaysian firms are less likely to be perceived as risky compared with their non-connected peers. In particular, reduction of systematic risk in cost of equity as a proxy to perceived risk is more significant for firms connected through directorship because political figures effectively channel substantial benefits in connecting firms under his/her political power. The link between types of political connections and investors’ perceived risk provides a new insight and direction for research about governance factors that affect firm risks.

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Published

2019-11-05

Issue

Vol. 12 (2019): Asian Journal of Accounting and Governance

Section

Articles

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