The Effect Of Political Conection On Malaysian Companies

As a special resource, political connection plays a key role in company development, and be a hot topic. China’s massive foreign investment has become an inevitable trend under a variety of policies such as the Maritime Silk Road, FTA, ASEAN and AIIB.Malaysia, as one of the main members of ASEAN, is China’s important trade partner.Meanwhile, China intends to enter Malaysia to set up businesses and to invest in the stock market in Malaysia, which will make a closer relationship in economic and financial fields.Ethnic characteristics in Malaysia that Malaysian control political and Chinese control economy make bilateral political and commercial relations established in order to meet the lack of resources because of the absolute control of their own resources.This allows a listed company in Malaysia to become a "natural materials", and provides easy access to the study sample.Meanwhile,for the entrepreneurs who are going to set companies in Malaysia and the investors who are going to invest to the Malaysian stock market understanding Malaysia’s political and business environment is particularly necessary to make the right decisions.This article committed to political effects on company value by the listed companies in Malaysia.This paper used the listed companies at KLSE from 2001 to 2013 as the research object.constructing three different forms of political relations (POL1, POL2, POL3) as explanatory variables and stock returns, return on invested capital, assets and liabilities as explained variables.POLl means prominent politician relationship, that is,if a company’s chairman or actual controller have a closer relation with an outstanding statesman such as Prime Minister, Deputy Prime Minister, Finance Minister, Minister of Industry,or this company owned by them.POL2 means government institutional ownership, that is,if a company is held by government or government agency more than 5 percent of the shares. POL3 means the background of chairman of the board or major shareholders, that is,if the chairman or major shareholder now or have served in government.The following conclusions:Political relations has a positive impact on stock returns and return on invested capital;Political relations has a positive effect on the weekly stock returns during adverse events;POL1 has a positive impact on leverage ratio, while POL2 has a negative impact on leverage ratio.This article will give the advice to the entrepreneurs who are going to set companies in Malaysia and the investors who are going to invest to the Malaysian stock market on whether to establish the political relation and what form going to be established, and how to select stocks and stock portfolio based on changes in the external environment.