Institutional Investors’ Monitoring and Stock Price Crash Risk: Evidence from Politically Connected Firms
Document Type
Article
Publication Date
1-1-2018
Abstract
Motivated by recent studies on political connections and stock price crash risk, this study investigates whether there is an association between politically connected (POLCON) firms and stock price crash risk. Further, we examine whether institutional investors' ownership can moderate this association. Using a dataset of Malaysian firms for the period 2002-2012, we show 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, implying effective monitoring. Finally, we find that only local institutional investors can significantly mitigate the positive association between POLCON firms and stock price crash risk. This suggests that different types of institutional investors can produce different monitoring outcomes in POLCON firms.
Keywords
Political connections, institutional investors’ monitoring, stock price crash risk
Publication Title
Review of Pacific Basin Financial Markets and Policies
Volume
21
Issue
04
Publisher
World Scientific Publishing
Additional Information
Dr Chong Aik Lee. Faculty of Business and Law, International University of Malaya-Wales, Jalan Tun Ismail, 50480 Kuala Lumpur, Malaysia.