Political Connections and Stock Returns: The Case of 2019 Thai General Election

Abstract

Political connections may increase the value of a company, its stock price, and consequently its stock returns. This study aims to assess the connection between political connections and stock returns in Thailand. The stock returns of companies listed on the Stock Exchange of Thailand and are included in the SET100 index were computed, and consequently incorporated into an event study in which the 2019 Thai general election serves as the event. The abnormal returns of companies connected with members of parliament elected under the first-past-the-post system do not differ from those of firms not connected around the election date but significantly differ when the results are officially announced. Those of companies connected with party-list members of parliament are slightly higher than those of firms not connected around the election but not different when the results are announced. They only differ when divided into the government and the opposition. Those of companies with connections to candidates for prime minister are significantly higher than those of companies without connections. This could suggest that connections with candidates for prime minister are more important for business operations than connections with members of parliament. The difference, however, dissipates after a few days, possibly due to political uncertainty after the election.