This study presents an innovative methodology for assessing the heterogeneity of politically connected firms in Malaysia, especially in the context of significant political changes following the 2018 general election (GE14). While political connections in Malaysia have historically influenced corporate strategies and performance, previous categorization and analysis have often been inconsistent. Building on Wong & Hooy’s (2018) framework, this study updates the classification of political connections through Government, Director, Family, and Crony, reflecting the shifts in Malaysia’s political landscape post-2018. By analysing firm-level data from 2014 to 2021, this study examines how different types of political connections impact corporate behavior across various political regimes. The findings offer new insights into the effects of these connections on corporate strategies and financial outcomes, highlighting the necessity for accurate categorization in political business research. This updated methodology addresses gaps in the existing literature and provides a framework for future studies in emerging markets.
Abdul Wahab, E. A., How, J., Park, J., & Verhoeven, P. (2018). Political patronage and analysts’ forecast precision. Journal of Contemporary Accounting and Economics, 14(3), 307–320. https://doi.org/10.1016/j.jcae.2018.07.003
Abdul Wahab, E. A., Jamaludin, M. F., Agustia, D., & Harymawan, I. (2020). Director Networks, Political Connections, and Earnings Quality in Malaysia. Management and Organization Review, 16(3), 687–724. https://doi.org/10.1017/mor.2020.26
Aldhamari, R., Mohamad Nor, M. N., Boudiab, M., & Mas’ud, A. (2020). The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia. Corporate Governance (Bingley), 20(7), 1281–1305. https://doi.org/10.1108/CG-04-2020-0122
Bliss, M. A., & Gul, F. A. (2012). Political connection and cost of debt: Some Malaysian evidence. Journal of Banking and Finance, 36(5), 1520–1527. https://doi.org/10.1016/j.jbankfin.2011.12.011
Cheong, C. W. H. (2023). Political regimes and its influence on the diversity–performance relationship in Malaysia. Asia-Pacific Journal of Business Administration, 15(5), 746–771. https://doi.org/10.1108/APJBA-07-2021-0321
Chung, C.-N., Luo, X. R., & Zheng, W. (2024). Institutional divide, political ties, and contested corporate governance reform in Taiwan. Journal of Management Studies, 1327–1363.
Fung, S. Y. K., Gul, F. A., & Radhakrishnan, S. (2015). Corporate political connections and the 2008 Malaysian election. Accounting, Organizations and Society, 43, 67–86. https://doi.org/10.1016/j.aos.2015.04.001
Gomez, E. Terence., & Jomo, K. S. (1997). Malaysia’s political economy?: politics, patronage, and profits (K. G. Machado, Ed.). Pacific Affairs, University of British Columbia.
Haustein, E., Lorson, P. C., Oulasvirta, L. O., & Sinervo, L. M. (2024). Financial accountability discharged from local government financial statements: an institutional theory approach to accounting change. Journal of Accounting and Organizational Change. https://doi.org/10.1108/JAOC-02-2022-0034
Hoang, K., Tran, T. T., Tran, H. T. T., & Le, A. Q. (2022). Do different political connections affect financial reporting quality differently? Evidence from Malaysia. Managerial and Decision Economics, 43(2), 289–300. https://doi.org/10.1002/mde.3395
Jacoby, G., Li, J., & Liu, M. (2019). Financial distress, political affiliation and earnings management: the case of politically affiliated private firms. European Journal of Finance, 25(6), 508–523. https://doi.org/10.1080/1351847X.2016.1233126
Kamarudin, K. A., Wan Ismail, W. A., Harymawan, I., & Shafie, R. (2021). Types of politically connected firms and analysts’ earnings forecast. Journal of Applied Accounting Research, 22(5), 883–913. https://doi.org/10.1108/JAAR-05-2020-0084
Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197. https://doi.org/10.1016/j.jacceco.2004.11.002
MASCO. (2021). Senarai Pekerjaan Piawaian Pengelasan Pekerjaan Malaysia (MASCO) (sehingga Februari 2021). Kementerian Sumber Manusia, Malaysia. https://emasco.mohr.gov.my/masco
Nakhmurina, A. (2024). Does fiscal monitoring make better governments? Evidence from U.S Municipalities. The Accounting Review, 99(4), 395–425. https://doi.org/10.2308/TAR-2020-0251
Nawawi, W. K., & Somchit, S. C. (2014). SOE Regulation in Malaysia and the Competitive Neutrality Principle. In UNCTAD (pp. 190–222). United Nations Conference on Trade and Development.
Nguyen, T. X., Hoang, K., Nguyen, C. C., & Bach, T. N. (2023). Do different political connections affect firms’ distress risk differently? International Journal of Emerging Markets, 18(2), 376–398. https://doi.org/10.1108/IJOEM-08-2020-0874
Peranginangin, Y., & Lee, M. Y. (2021). Does Corporate Governance Matter for Politically Connected Firms?-Evidence from the Regime Change in Malaysia. China Accounting and Finance Review, 23(2), 22–55. https://www.researchgate.net/publication/351776135
Phan, D. H. B., Tee, C. M., & Tran, V. T. (2020). Do different types of political connections affect corporate investments? Evidence from Malaysia. Emerging Markets Review, 42. https://doi.org/10.1016/j.ememar.2019.100667
PwC. (2015). State-Owned Enterprises?: Catalysts for public value creation. In Price Waterhouse Coopers (pp. 1–48). www.psrc.pwc.com
Salehi, M., & Norouzi, F. (2023). The effect of corporate lobbying on fraud and money laundering. Journal of Money Laundering Control, 26(3), 553–583. https://doi.org/10.1108/JMLC-01-2022-0017
Tan, K. W., & Wong, M. F. (2024). Heterogeneous political connections and corporate overinvestment: evidence from Malaysian firms. Managerial Finance. https://doi.org/10.1108/MF-11-2023-0720
Tee, C. M. (2019). Political connections and stock price crash risk: evidence of institutional investors’ heterogeneous monitoring. Revista Espanola de Financiacion y Contabilidad, 48(1), 50–67. https://doi.org/10.1080/02102412.2018.1461461
Tee, C. M. (2020). Political connections and income smoothing_ Evidence of institutional investors monitoring in Malaysia _ Elsevier Enhanced Reader.pdf. Journal of Multinational Financial Management, 55.
Tee, C. M., & Rasiah, P. (2020). Earnings persistence, institutional investors monitoring and types of political connections. Asian Review of Accounting, 28(3), 309–327. https://doi.org/10.1108/ARA-05-2019-0112
Tee, C. M., Lee, M. Y., & Majid, A. (2021). Heterogeneous political connections and stock price crash risk: Evidence from Malaysia. Journal of Behavioral and Experimental Finance, 31. https://doi.org/10.1016/j.jbef.2021.100552
Tee, C. M., Pak, M. Sen, Lee, M. Y., & Majid, A. (2021). CEO generational differences, risk taking and political connections: Evidence from Malaysian firms. Journal of Behavioral and Experimental Finance, 31. https://doi.org/10.1016/j.jbef.2021.100518
Tee, C. M., Teoh, T. T. M., & Hooy, C. W. (2022). Political Connection Types and Corporate Tax Avoidance: Evidence from Malaysia. Malaysian Journal of Economic Studies, 59(2), 199–220. https://doi.org/10.22452/MJES.vol59no2.2
Tessema, A. M., Zahir-Ul-Hassan, M. K., & Ahmed, A. (2024). Corporate governance, earnings management and the moderating role of political connections: evidence from the Gulf Co-operation Council countries. International Journal of Ethics and Systems. https://doi.org/10.1108/IJOES-02-2024-0056
Wang, Y., Ashton, J. K., & Liu, J. (2024). Does the form of state ownership and political connections influence the incidence of financial statement fraud? The European Journal of Finance, 1–26.
Wong, W. Y., & Hooy, C. W. (2018). Do types of political connection affect firm performance differently? Pacific Basin Finance Journal, 51, 297–317. https://doi.org/10.1016/j.pacfin.2018.08.009
Wong, W. Y., & Hooy, C. W. (2021a). Market response towards different types of politically connected firms during political events: evidence from Malaysia. International Journal of Managerial Finance, 17(1), 49–71. https://doi.org/10.1108/IJMF-09-2019-0331
Wong, W. Y., & Hooy, C. W. (2021b). Politically connected firms and their stock return volatility during high-visibility events: Evidence from Malaysia. International Journal of Business and Society, 22(3), 1449–1468. https://doi.org/10.33736/ijbs.4314.2021
Wong, W. Y., Ooi, C. A., & Hooy, C. W. (2022). The Exogenous Shock of General Elections: Politically Connected Firms and Stock Price Crash Risk. International Journal of Business and Society, 23(3), 1719–1738. https://doi.org/10.33736/ijbs.5198.2022
Zainudin, R., & Khaw, K. L. H. (2021). Dividend payout policies of politically connected firms: Evidence from Malaysia. Borsa Istanbul Review, 21(4), 384–393. https://doi.org/10.1016/j.bir.2020.12.005.
Mohamed, Z. S. S., Ahmad, A., & Ahmad, N. N. (2024). Uncovering the Heterogeneity of Politically Connected Firms in Malaysia: A Novel Methodology. International Journal of Academic Research in Business and Social Sciences, 14(10), 692–701.
Copyright: © 2024 The Author(s)
Published by Knowledge Words Publications (www.kwpublications.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
