Market reactions to financial distress announcements: Do political connections matter?

Figures & data

Table 1. Daily AARs around the financial distress announcement day

	AARs (%)		t-statistics
Event days	Politically connected	Non-politically connected	Politically connected	Non-politically connected
−10	−0.7487	−1.0698	−0.8286	−2.4020**
−9	−0.8217	−0.5152	−1.0220	−1.3560
−8	0.2537	0.0333	0.2456	0.0672
−7	0.4992	0.0506	0.8882	0.0926
−6	−1.3522	−0.2640	−0.9969	−0.3946
−5	−0.8212	−1.6239	−0.7737	−2.9195***
−4	−0.5425	−1.0306	−0.6871	−2.3250**
−3	1.1213	−0.2169	0.6947	−0.3937
−2	−0.7080	−0.9991	−0.8204	−1.9102*
−1	0.0619	−1.6603	0.0537	−1.8974*
0	−0.2631	−3.3520	−0.2904	−3.7506***
1	−16.1135	−18.5559	−4.8401***	−11.9818***
2	−14.0155	−10.8758	−5.2417***	−7.4462***
3	0.4038	−3.1482	0.2899	−2.9822***
4	−4.3884	−2.3985	−3.4621***	−2.3083**
5	−1.4427	−2.6972	−1.0894	−2.8746***
6	−0.8416	−0.0106	−0.8106	−0.0141
7	0.0513	−0.1064	0.0443	−0.1689
8	0.3518	−1.5558	0.4078	−2.7840***
9	0.4659	−0.5021	0.2371	−0.5914
10	−1.2978	−1.2259	−1.2153	−2.0079**

Notes: t-statistics test the null hypothesis that the average abnormal returns are equal to zero. *, ** and *** indicate statistical significance at the 10%, 5% and 1% levels.

Table 2. CAARs surrounding the announcement day by outcomes

	(−30, −1)		(−1, +1)		(+1, +30)		(−60, +60)
Sub-sample	CAARs (%)	t-statistics	CAARs (%)	t-statistics	CAARs (%)	t-statistics	CAARs (%)	t-statistics
Politically connected (n = 38)	−5.77	−1.5673	−16.31	−4.0720***	−36.51	−5.8917***	−43.99	−4.2279***
Non-politically connected (n = 198)	−11.50	−5.6849***	−23.57	−13.2285***	−40.40	−13.7657***	−61.04	−13.5380***
Difference^a	5.73	1.364	7.25	1.654*	3.88	0.567	17.05	1.504
Outcomes
Re-emerged
Politically connected (n = 25)	−6.19	−1.8649*	−14.06	−3.8247***	−21.69	−3.1781***	−25.33	−3.0615***
Non-politically connected (n = 96)	−11.67	−5.3798***	−16.64	−7.4048***	−23.79	−6.4974***	−35.16	−6.4589***
Difference^a	5.48	1.382	2.59	0.601	2.10	0.271	9.83	0.992
Delisted
Politically connected (n = 13)	−4.97	−0.5562	−20.66	−2.1734**	−65.01	−8.1220***	−79.87	−3.4079***
Non-politically connected (n = 102)	−11.34	−3.3698***	−30.08	−11.6416***	−56.02	−14.1172***	−85.40	−13.7412***
Difference^a	6.37	0.668	9.43	0.957	−8.99	−1.006	5.53	0.228

Notes: t-statistics test the null hypothesis that the cumulative average abnormal returns are equal to zero. *, ** and *** denote statistical significance at the 10%, 5% and 1% levels, respectively. ^aTo compare the mean difference, t-statistics under the assumption of unequal variances and two-tailed test were utilized.

Figure 1. CAARs surrounding the announcement day.

Figure 2. CAARs surrounding the announcement day of financial distress outcomes (delisted and re-emerged) on politically connected versus non-politically connected firms.