Valuing Corporate Governance in Politically Connected Firms: A Study of Thailand

Thailand underwent intensive corporate governance reforms following the Asian financial crisis making it a good setting to test the joint effects of corporate governance and political connections on firm value. Using data from listed firms in Thailand from 2001 to 2006, this dissertation finds that political connections add value to connected firms, as reflected in their traded share prices. Moreover, political connections and corporate governance tend to be complementary. That is, rather than subtract value from firms through the greater transparency that might conflict with the process of political connection value extraction, better corporate governance adds value to minority shareholders as it might re-distribute benefits away from majority shareholders' expropriation and into minority shareholders' hands. This dissertation also finds that the nature of cash flows from political connections and good corporate governance are different; cash flows from political connections are much larger and more tangible than cash flows from better corporate governance which are usually intangible and not immediately measurable, rendering disproportionate values between the two. In addition, industry effects also play an important role in political concentration, political connection value, and complementarity between political connections and corporate governance.