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Endang Dwi Astuti
School of Business and Management, Institut Teknologi Bandung, Indonesia
Economics, Econometrics & Finance

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Does political connectedness determine stock returns in Indonesia? Endang Dwi Astuti; Yunieta Anny Nainggolan
Jurnal Perspektif Pembiayaan dan Pembangunan Daerah Vol. 7 No. 1 (2019): Jurnal Perspektif Pembiayaan dan Pembangunan Daerah
Publisher : Program Magister Ilmu Ekonomi Pascasarjana Universitas Jambi

Show Abstract | Download Original | Original Source | Check in Google Scholar | Full PDF (751.884 KB) | DOI: 10.22437/ppd.v7i1.7290

Abstract

This study aims to investigate the influences of political connection on stock returns in Indonesia. We develop a comprehensive database of firm-level political connectedness among Indonesian firms from 2010 to 2017. Our sample is non-financial Indonesian listed firms that are selected in the Kompas 100 index for 16 consecutive periods, with a total of 448 firm-year observations. This study employs panel data regressions to estimate this relationship, then mitigate possible endogeneity issues using two-stage least square with fixed-effects. The finding of this study shows that political connectedness is associated with lower stock returns, more prominently in agriculture and consumer goods industries. Moreover, state-owned enterprises are more likely to earn lower stock returns. In summary, our result suggests that investing in politically connected firms could be a risky investment. The finding holds using alternative estimation methods
Co-Authors Yunieta Anny Nainggolan