The Role of Political Collusion in Corporate Performance in the Korean Market

Abstract

Many studies investigate collusion between political connections and firm performance, but Korean research on this topic is not very diverse. This study, based on financial data of listed Korean companies spanning the period from the 15th to the 19th Korean governments, analyzes whether political connections between governments and enterprises have a positive, negative, or no correlation with firm performance. The results show that the average return on assets for politically connected firms in the sample tends to be 10% higher than the corresponding value for sample firms that are not politically connected. Since existing studies measure political connections in a fragmented way, this study offers necessary implications for exploring the numerous structural problems of and solutions to the chronic issues currently faced by the Korean economy, as it investigates the economic policies from 1998 to 2018 and their influences on firm performance through the analysis of longer-term data.

Some Causal Effects of an Industrial Policy

“…The dependent variables are estimated in natural logarithms, so we add one to the small number of observations where the outcome value is zero. 16 Although the maximum investment subsidy rate (NGE) is an attractive treatment variable as it is the main EU-determined policy variable, an alternative specification to equation (6) is to use the subsidies actually paid out to firms in the area. The advantage of using the actual RSA subsidy is that it is more easily interpreted as "increasing the amount of dollar subsidies by 10 percent is associated with an increase in employment of x percent."…”

“…We show robustness to starting in alternative years below. 16 For example, when we are looking at employment, L, as an outcome, the dependent variable is y = ln(1 + L). One hundred of our 10,737 areas have 0 manufacturing employment in all years (0.9 percent of the sample) and 21 areas have no unemployed in all years (0.2 percent of the sample).…”

The Impact of Political Connection and Information Asymmetry on Investment Efficiency: Evidence from China

“…However, the extant literature finds inconsistent consequences of political connection on firm value. A large literature suggests that political connections enhance firm value [30][31][32]. A common view is that political connection contributes more to firms' success than their operating efficiency in emerging markets.…”

“…A company is defined as politically connected if the chairman of the board, an internal or external board member, an independent member, or a special assistant of the secretary of the board is a current or former committee member of the Chinese People's Political Consultative Conference (CPPCC) which is a political advisory body in China, or a current or former government official at or above the county-level government [8,[26][27][28][29][30][31][32]54,55]. This is a dummy variable.…”

Investigating the Relationship between Information Asymmetry and Political Communication with Investment Efficiency in Tehran Stock Exchange

“…However, the available texts express the inconsistent consequences of political Communication on the company's value. Extensive literature suggests that political relationship increases corporate value (Choi et al, 2020;Faccio et al, 2006). A standard view is that political links contribute to corporate success rather than their performance in emerging markets.…”