Who Will Fare Better in a Political Crisis?

Abstract

Because a political crisis may negatively affect stock returns, it is important for investors to know which firms will be affected less adversely by such a crisis. This study shows that firms that are controlled by families or have high growth opportunities will experience larger declines in their stock prices and a longer period of decline. Firms with outside directors, higher ratios of outside directors, or higher institutional shareholdings will experience smaller declines in their stock prices and a shorter period of decline. In other words, firms with better governance mechanisms and those considered value stocks will be less adversely affected by a political crisis; thus, their investors will suffer fewer negative effects.

Keywords:

• board composition
• corporate governance
• family-controlled business
• growth opportunities
• outside director