Wharton-SMU Research Center

In-House Seminar

Guest Speaker:

Felix Oberholzer-Gee
Assistant Professor of Business and Public Policy, The Wharton School, University of Pennsylvania

Topic:

Political Relationships, Global Financing and Corporate Transparency

Chairperson:

Lim Kian Guan
Professor of Finance, School of Business, Singapore Management University

Venue:

Eu Tong Sen Building, Level 1, Seminar Room 2
Singapore Management University
469 Bukit Timah Road, Singapore 259756

Date:

Wednesday, 5 November 2003, at 4.00pm

Reservation:

This seminar is free. Places are limited. Please confirm your attendance by Tuesday, 4 November 2003, 12 noon with Ms. Priscilla Cheng at priscillacheng@smu.edu.sg or telephone: 6822-0383.

About the Seminar:

This study examines the financing choices of firms operating in a weak institutional environment. We argue that in relationship-based systems, global financing and strong political connections are alternative means to create firm value. Well-connected firms are likely to be less inclined to access global capital markets because (state-owned) domestic banks provide capital at low cost. Moreover, the expanded disclosures and additional scrutiny that come with issuing foreign securities might be at odds with close political ties at home because these ties can best be exploited when little is disclosed about the firm. Using data from Indonesia, we provide strong support for the hypothesis that global financing and political connections are substitutes: Firms with close political ties to former President Soeharto are significantly less likely than non-connected firms to have publicly traded foreign securities. To study performance effects, we examine how returns during the Asian financial crisis differ between firms with and without foreign securities. Consistent with prior work, we find that firms with foreign securities exhibit higher returns during the crisis. However, our data indicate that politically well-connected firms also received considerable support during this period. These results suggest that previous estimates of cross-listing benefits are considerably biased if domestic opportunities such as political connections are ignored.