Is the effect of a political event more pronounced for government controlled firms?
DOI:
https://doi.org/10.14414/jebav.v19i2.629Keywords:
market reaction, event study, political event, government-controlled firms, abnormal returnAbstract
This study investigates market reaction to a political event, which is the presidential election of Republic of Indonesia in 2014 by studying 387 publicly traded firms in the Indonesia Stock Exchange. It employs event study method to measure the information content of this event. By going deeper, this study looked at the effect difference between government controlled firms (partially privatized firms) and private firms. The results show that there was a significant abnormal return around the event date. The negative abnormal return one day before the election date, which was followed by rebounding one day after the event, indicate that investors consider that the election had been done well particularly with respect to the political stability and security. Moreover, this paper reveals that the effect of presidential election is more pronounced for government-controlled firms than private firms. Government controlled firms may be more susceptible to political event.References
A Chau, F, Deesomsak, R, Wang, J 2014, Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries, Journal of International Financial Markets, Institutions & Money, vol. 28, pp. 1-19.
Chen, D-H, F-S Bin & C-D, Chen 2005, The impacts of political events on foreign institutional investors and stock returns: Emerging market evidence from Taiwan, International Journal of Business, vol. 10, no. 2, pp. 165-188.
Christofis, N, C Kollias, S Papadamou and A Stagiannis 2013, Istanbul Stock Market’s reaction to terrorist attacks, Dogus University Journal, vol. 14, pp. 153-164.
Click, RW 2005, Financial and political risk in US direct foreign investment, Journal of International Business Studies, vol. 36, no. 5, pp. 559-575.
Fama, E 1970, Efficient capital markets: A review of theory and empirical work, The Journal of Finance, vol. 25, no. 2, pp. 383-417.
Fama, E 1991, Efficient capital market II, The Journal of Finance, vol. XLVI, no. 5, pp. 1575–1617.
Goodell, JW, Mc Groarty, F, Urquhart, A 2015, Political uncertainty and the 2012 US presidential election: A cointegration study of prediction markets, polls and a stand out expert, International Review of Financial Analysis, vol. 42, pp. 162-171.
Guidolin, M & EL Ferrara 2010, The economic effects of violent conflict: evidence from asset market reactions, Journal of Peace Research, vol. 47, no. 6, pp. 671-684.
Gunay, E 2016, Is political risk still an issue for Turkish stock market?, Borsa Istanbul Review vol. 16, no. 1, pp. 21-31.
Mc Williams, A & D Siegel 1997, Event studies in management research: theoretical and empirical issues, Academy of Management Journal, vol. 40, no. 3, pp. 626-657.
Oehler, A, TJ Walker & S Wendt 2012, Effects of election results on stock price performance: evidence from 1976 to 2008, Working paper, <http://papers.ssrn.com/sol3/papers.cfm?abst
ract_id=2192514>.
Peterson, PP 1989, Event Studies: A Review of Issues and Methodology, Quarterly Journal of Business and Economics, vol. 28, no. 3, pp. 36-66.
Prabowo, MA, Untoro, W, Trinugroho, I, Angriawan, A 2014, State owned Enterprises, Efficiency and Performance: The Case of Indonesia, International Business Management, vol. 8, issue 2, pp. 153-158.
Suryawijaya, MA & FA Setiawan 1998, Reaksi Pasar Modal Indonesia terhadap Peristiwa Politik Dalam Negeri (Event Study Pada Peristiwa 27 Juli 1996), Kelola Universitas Gadjah Mada, vol. VII, issue 18, pp. 137-153.
Trinugroho, I, Agusman A, Tarazi, A 2014, Why have bank interest margins been so high in Indonesia since the 1997/1998 financial crisis?, Research in International Business and Finance, vol. 32, pp. 139–158.
