This paper aims to examine the impact of general elections on the stock returns of the politically connected group affiliated firms of Pakistan.
This study uses the market model to assess the impact of political connections (PCs) on abnormal stock returns, before and after election events. We have used share price data of non-financial firms of Pakistan for the years 2008-2013.
It has been found that behavior of cumulative average abnormal returns (CAAR) is significantly different for standalone and politically connected group affiliated firms. The results reveal that CAARs of politically connected group affiliated firms have experienced less deviation as compared to stand alone firms. Therefore, it is argued that politically connected group firms may reduce the impact of political uncertainty on stock returns in comparison to stand alone firms.
This study is helpful for policy regulators of Pakistan to devise appropriate policies to maintain a level playing field for politically connected and standalone firms.
This study provides a new dimension to understand the role and association of PCs and general elections with stock markets returns.
