COE-RES Discussion Paper Series Center of Excellence Project

The Normative Evaluation and Social Choice of Contemporary Economic Systems

Graduate School of Economics and Institute of Economic Research Hitotsubashi University

COE/RES Discussion Paper Series, No.179 July 2006

Market valuation of political power:

Evidence from politically connected firms in Thailand

Pramuan Bunkanwanicha

(ESCP-EAP) Yupana Wiwattanakantang

(Hitotsubashi University)

Naka 2-1, Kunitachi, Tokyo 186-8603, Japan Phone: +81-42-580-9076 Fax: +81-42-580-9102

URL: http://www.econ.hit-u.ac.jp/~coe-res/index.htmE-mail: coe-res@econ.hit-u.ac.jp

Market valuation of political power: Evidence from politically

connected �rms in Thailand

Pramuan Bunkanwanichay

ESCP-EAP

Yupana Wiwattanakantangz

Hitotsubashi University

July 17, 2006

yESCP-EAP European School of Management, 79, avenue de la République 75543 France Cedex11. Tel: +33 1 49 23 58 03; Fax: +33 1 49 23 20 80; E-mail: pramuanb@escp-eap.net

zInstitute of Economic Research, Hitotsubashi University 2-1 Naka, Kunitachi, Tokyo 186-8603Japan. Tel: +81 42 580 8374; Fax: +81 42 580 8333; E-mail: yupana@ier.hit-u.ac.jp

We thank Wladimir Andre¤, Chris Baker, Stijn Claessens, Fabian Gouret, Joseph Fan, AkiraKohsaka, Karl Lins, Deunden Nikonborirak, Vikas Mehrotha, Randall Morck, Pasuk Pongpaichit,Andreas Savva, Jean Tirole, and seminar participants at the Chinese University of Hong Kong, OsakaUniversity, Université de Paris 1-Panthéon-Sorbonne, Université de Toulouse, Stockholm School ofEconomics, the 12th HKUST Summer Symposium on Accounting Research in Hong Kong, and the2005 International Conference on Corporate Governance in Asia and China in Shanghai, for helpfulcomments and suggestions. We are grateful to Chaiyasit Anuchitworawong, Piruna Polsiri, ThitimaSitthipongpanich for their help with the data. The second author would like to acknowledge the�nancial assistance of a grant-in-aid from the 21st Century Center of Excellence Program ofHitotsubashi University from the Ministry of Education and Science, Japan, a grant-in-aidfrom the Japanese Society for the Promotion of Science (JSPS), and the Royal SwedishAcademy of Sciences.

Market valuation of political power: Evidence from politically

connected �rms in Thailand

Abstract

We analyze the outcomes when a handful of business tycoons became the country leaders

as premier and cabinet members. The �rst nomination of the Thai Premier in 2001 allows

us to identify such an event. The event study shows that immediately after the tycoons won

the general election, the stock market recognized the value of the �rms owned by tycoons-

cum-leaders. Stock prices continued drifting upward in the following two years. Overall, the

results indicate that political power is value enhancing to connected �rms. Tycoons-cum-

leaders have a political rent-seeking advantage to extend various economic favors to their

�rms.

JEL classi�cation: G15; G34; G38; K23

Keywords: Business groups, Corporate governance, Emerging economies, Family �rms,

Political connections

1 Introduction

A growing body of literature suggests that elite business leaders often in�uence political

leaders to implement policies for their own bene�ts (e.g., Krueger (1974), De Soto (1989),

and Shleifer and Vishny (1993, 1994)). Such public policies may allow business leaders to

directly divert public resources for their private use. Other forms of state actions namely

regulations, subsidies, and taxation may provide business leaders pro�table protection over

competitors. Consistent with this argument, a recent work by Faccio (2006) shows empiri-

cally that big businesses around the world are well connected with politicians. Large �rms

often have politicians on the board of directors.

Political connections, therefore, are valuable to business owners. Indeed, a number of

recent studies employ the event study approach showing that when the connections were

lost, well connected �rms su¤er. For example, Robert (1990) �nds that in the US when

a politician unexpectedly dies, companies with connections to him show negative stock

returns. Fisman (2001) shows that companies in Indonesia owned by family and friends

of President Suharto reacted negatively to bad news about his health. Similarly, Ramalho

(2003) documents that when the impeachment of the President of Brazil, Collar de Mello

was announced in 1992, the market valuations of companies connected to him were damaged.

In this paper, we analyze the opposite event. We hypothesize that a reverse relationship

should be observable when big business leaders assume public o¢ ce, especially top level

positions, i.e., Prime Minister or cabinet level position. We focus on that level of public

positions because they are extremely in�uential� to implement laws, regulations, and even

in�uence institutional development to lock in corporate governance power. Our hypothesis,

therefore, predicts that if tycoons have economic incentives for holding top o¢ ce and hence

pursue private interests once taking o¢ ce, �rms owned by their families should enjoy greater

market valuation.

To investigate this hypothesis, we use an experiment from Thailand. The �rst nomina-

tion of the Thai Prime Minister Thaksin Shinawatra in February 2001 provides a research

setting. Since this is the �rst time that this group of tycoons assumed public o¢ ce, this

1

event provides an excellent natural experiment that helps ensure that the causality runs

from political in�uence to the valuation change of politically-connected �rms.

In the �rst analysis, we investigate the �rms�stock market value around the election date.

This event provides crucial information about overall policies that would be implemented by

the new government in the following four years. We �nd that immediately after Thaksin won

the general election on January 6, 2001, the stock market recognized the value of political

connections very positively. The mean cumulative market-adjusted abnormal returns in the

3-day period around the election date (CARs [0,+2]) of �rms owned by tycoons-cum-leaders

were about 3.1% higher than the CARs of other �rms. In the second analysis, we investigate

the longer term e¤ects of the tycoon holding top o¢ ce on the �rms�value. We �nd that

stock prices of their connected �rms show astonishingly increased. Over three years after

holding o¢ ce, on average connected �rms outperformed the counterpart non connected �rms

by 220.1%. Our regressions controlling for other �rm characteristics are also consistent with

these results.

The results suggest that the tycoons are likely to use public o¢ ce to bene�t their business

empires. We argue that their private interests can shape policy outcomes probably because

the country does not have su¢ ciently good checks and balances against the government. For

example, in Thailand, the TV stations and major newspapers are controlled by the state

and the tycoons� families (see Dyck and Zingales (2002) and Djankov, McLeish, Nenova,

and Shleifer (2003)).

We believe that our results are not unique to Thailand and can be generalized to other

countries with weak checks and balances. In fact, there are many countries around the

world in which top business tycoons have turned the leaders. For example, In Hong Kong,

the �rst Chief Executive, Tung Chee-hwa, is a shipping tycoon. In Ukraine, former Prime

Minister Yulia Tymoshenko is an energy tycoon. In Lebanon, Ra�q Hariri was a property

and media tycoon who served 5 times as the Prime Minister.

The remainder of the paper is organized as follows. Section 2 reviews the background

of Thaksin Shinawatra and his administration. Section 3 describes our data and variables.

Section 4 reports the empirical results. Section 5 concludes the paper.

2

2 Thaksin�s administration (February 2001- January 2005)

Thaksin Shinawatra is one of the richest tycoons in Thailand having made his fortune almost

from scratch. Appendix 1 provides the chronology of the major events. Thaksin entered

politics in 1994 by being appointed as foreign minister for only three months from November

1994 to February 1995. He had another two more similar appointments as deputy prime

minister: the �rst time was for 13 months (from July 1995 to August 1996), and the second

time was for only three months (from August to November 1997). In 1998, Thaksin moved

on by co-establishing a party, the Thai Rak Thai Party (TRT), with other leading tycoons.

This new party ran its �rst general election on January 6, 2001. The TRT won 248 out of

500 seats of the House of Representatives. By absorbing several smaller parties, the TRT

managed to obtain an absolute majority in the lower house and was able to form the cabinet.

Thaksin Shinawatra, the TRT leader, was nominated as prime minister on February 9, 2001.

Thaksin Shinawatra�s administration has ruled the country since then, and was re-elected

in the February 2005 election.

For the �rst half-year, the political power of Thaksin Shinawatra�s administration was

shaky due to the serious corruption charge against Prime Minister Thaksin that began in late

2000. Thaksin was accused of concealing assets while serving in top o¢ ce in 1997, an alleged

violation of the 1997 constitution. Thaksin was tried by then the Constitutional Court. Had

he been found guilty, Thaksin would have had to step down and been expelled from holding

public o¢ ce for �ve years. But, he was declared innocent in August 2001. Therefore, August

2001 is considered as the starting point when the Thaksin�s administration attained e¤ective

political power.

[Insert Appendix 1 here]

3

3 Data and variables

3.1 Data sources

Our sample includes non �nancial companies listed in the Stock Exchange of Thailand

in 2001-2003. To remove any e¤ects of the 1997 Asian �nancial crisis on our analysis,

we exclude two sets of �rms: (1) 12 �nancially distressed �rms that were moved to the

rehabilitation section during 2001-2003, and (2) seven �rms with negative book value of

equity. Our �nal sample consists of 770 �rm-year observations representing 272 �rms.

We obtain the �nancial data from the Worldscope as of October 2004. Stock price,

stock returns, and stock market index data are collected from the Datastream. In order to

identify the country�s top tycoons, we construct a database on family trees and ownership.

We obtain the ownership information from the company annual reports (FM 56-1) which are

�led to the Stock Exchange of Thailand annually, and reproduced in two databases namely

the I-SIM CD-ROM and the SETSMART on-line service. These databases are available at

the website of the Stock Exchange of Thailand.

3.2 Ownership data

We trace the ultimate owners of the �rms in the sample by using the standard approach sug-

gested by La Porta, Lopez-de-Silanes, and Shleifer (1999) and Claessens, Djankov, and Lang

(2000). We use a number of databases to trace the pyramidal and cross-share ownership

that is involved with a chain of companies. The major source of the ownership data from

the company annual report (FM 56-1). These databases provide a detailed ownership data

that include shareholders with stakes of at least 0.5%. The company annual report (FM

56-1) also provides a list of a �rm�s a¢ liated companies and the shareholdings. The Busi-

ness On Line (BOL) database provides the ownership information of non listed companies.

The BOL company is the sole agent that has a license from the Ministry of Commerce to

reproduce the accounting and ownership information of all companies that were registered

at the Ministry of Commerce.

We treat all family members as well as companies ultimately owned by these members

4

as a single shareholder to account for the fact that it is a common practice in Thailand

that businesses are closely tied by an extensive family. A shareholder, therefore, includes

individuals with the same surname as well as close families that are linked to the family by

marriage. Surnames can be used to trace family relationship as family names in Thailand

are unique and only people belonging to a family may use that family�s name.

We use multiple data sources to identify family trees. The company annual report (FM

56-1) provides the information on the family relationships among the major shareholders

as well as the board members. For established families, we were able to trace family rela-

tionships using various documents that provide a genealogical diagram of the top business

group families. Brooker Group (2001) provides the list of the top 150 families, the a¢ liated

companies, and family relationship. Sappaiboon (2000, 2001) provide detailed information

on family trees of the top 100 families. For less established families, however, we were

not able to trace the relationship beyond the last name and the family information pro-

vided in the company annual report (FM 56-1). Some of our �nancial data, therefore, may

under-estimate the real value held by such families.

3.3 De�nition of connected �rms

We de�ne connected �rms as the �rms that are owned by the tycoons who were in the

Thaksin Shinawatra�s cabinets during 2001-2003. This group of tycoons will be hereafter

referred to as tycoons-cum-leaders (TCLs). This information is available at the Secretariat

of the Cabinet�s website (http://www.cabinet.thaigov.go.th). As noted in Section 3.1, we

consider extended family members of TCLs as one individual to account for the fact that

businesses in Thailand are tied closely among family members. The information on family

relationships is also crucial to our analysis due to the restrictions in the 1997 Constitution.

The constitution limits the shareholdings of cabinet members at 5%. These restrictions,

however, do not extend to spouse, children, parents, and siblings. Therefore, before assuming

o¢ ce, tycoons transferred assets to other family members.

Table 1 shows the list of the tycoons�family names and their positions in the admin-

istration. There are eight families in Thaksin�s administrations. We de�ne �rms that are

5

owned by TCLs as the �rms in which a TCL owns at least 10% of the shares.

Table 2 shows the distribution of sample �rms by industry which is de�ned following

Campbell (1996). There are 19 TCL �rms in 2000 and 2001; 21 and 23 TCL �rms in 2002,

and 2003, respectively. TCL �rms appear in all the industries except the petroleum and

services.

[Insert Table 1 and Table 2 here]

4 Empirical results

Our hypothesis predicts that if TCLs have economic incentives for holding top o¢ ce, �rms

owned by their families should enjoy greater market valuation. However, if the TCLs aim

to pursue policies that maximize social welfare (e.g., Stiglitz (1989)), we should not observe

superior performance of �rms owned by the tycoons over other �rms. If the market expects

that the economy in general will be better o¤ by the rule of the tycoons, the stock market

reaction should be equally positive for all �rms. In contrast, if minority shareholders view

that the controlling shareholders will use the �rms�resources to achieve their political ide-

ology, the market valuation of politically connected �rms could be negative or lower than

other �rms.

To investigate this issue, we employ the event study approach. Our analysis proceeds

according to the following two steps. First, we begin our analysis by examining the imme-

diate e¤ect of political power on stock returns. Second, we evaluate the long term e¤ect by

employing the buy and hold returns approach.

4.1 The immediate e¤ect

In this section, we examine the stock price responses to the election victory of Thaksin�s

party. The election was held on Saturday January 6, 2001. Since Monday January 8 was

the �rst trading day right after the election day, we set January 8 as the event date (t = 0).

This event is crucial as it marks the transition from business leaders to political leaders. If

the election victory conveys the information on their political in�uence that would bene�t

6

the TCLs, we should observe positive abnormal returns for �rms owned by the TCLs.

We focus on TCL �rms for the following reasons. Under the 1997, the prime minister

and ministers are chosen from elected MP of the House of Representatives. Out of the 500

MPs, 400 are elected on a constituency basis, and 100 MPs are chosen from "party lists"

drawn up by each party. The number of a party list members chosen as MPs is dependent on

the number of votes obtained by each party. Each party is required to disclose the members

of a party list and the ranking of each member during the election campaign. In�uential

members of a party are often included in the top ranking of the party�s list. The ranking

of the party list is important as it determines the members�chances of not only becoming

MPs but also being chosen to join the cabinet. Regarding the TRT party, the TCLs were

the founding members and executives and hence were placed among the top of the TRT

party�s list. So, the victory of the election by the TRT party should convey the information

that the top members would become ministers.

We employ the standard event study methodology following Brown and Warner (1985)

to compute abnormal returns. Speci�cally, the abnormal return (AR) is de�ned as:

ARit = Rit � E(Rit)

ARit = Rit � (b�i + b�iRmt);where Rit and Rmt are the daily return of the �rm i at time t and the daily return of the

market at time t, respectively. Here, we use the Stock Exchange of Thailand index (SET

index) as a measure of the market index. The coe¢ cients b�i and b�i are the ordinary leastsquare estimates of the intercept and slope, respectively, of the market model regression.

We estimate the �rm-speci�c parameters b�i and b�i , using daily stock return data for a 200trading day window (-220, -21) before the event date. Speci�cally, we use the stock return

data from February 15, 2000 to December 4, 2000.

To obtain the cumulative abnormal return (CAR), the daily abnormal return is accumu-

lated from the event date (t = 0) to day +2 after the event date. Speci�cally, the windows

of analysis are two-day (0, +1) and three-day (0, +2).

Figure 1 shows the mean of CARs for TCL �rms as compared to other �rms. The

7

results are astonishing showing that the stock market reacted very quickly to the election

results. The market indeed responded to the victory news very positively on TCL �rms and

immediately discounted other �rms.

To con�rm whether TCL �rms signi�cantly outperformed non TCL �rms, we employ

the univariate tests. Table 3 presents the results of the tests. While TCL �rms experienced

signi�cantly positive abnormal returns in all windows of analysis, non TCL �rms had signif-

icantly negative CARs. The abnormal returns are sizeable. The di¤erence of average CARs

for the two groups of �rms is 2.57% for the two-day (0, +1) window and 3.11% for the

three-day (0, +2) window. The t-test results indicate that the mean CARs are signi�cantly

di¤erence from zero at the 5% level in both windows. These results, therefore, are consistent

with the CAR pattern reported in Figure1. The stock market recognized the political power

immediately after the election victory of the �rms�controlling shareholders.

We perform multivariate regressions to control for other factors that may a¤ect stock

returns. The CAR of each window is used as the dependent variable. Our main explanatory

variable is a TCL dummy which takes the value of one if a �rm is owned by one of the eight

tycoons listed in Table 1, and zero otherwise. We include other control variables namely size,

leverage, market-to-book equity, and industry e¤ects. Size is measured as the logarithm of

total assets. Leverage is the ratio of the book value of total debt to the book value of total

assets. Market-to-book equity is the ratio of market value of equity to the book value of

equity. Following Wiwattanakantang (1999) and Charumilind, Kali, and Wiwattanakantang

(2006), total debt is de�ned as the aggregation of short-term debt, short-term portion of

long-term debt, and long-term debt. We include 11 industry dummies to control for industry

e¤ects. All of these variables are measured at year-end of 2001. By controlling for the �rm

characteristics, we can remove the possibility that di¤erences in stock returns would be

driven by systematic di¤erences in those factors for TCL and non TCL �rms.

Table 4 presents the regression results. All regressions are estimated using the ordinary

least squares (OLS) method with clustering at the �rm level. We �nd that our results are

robust. The estimated coe¢ cients of the TCL dummy are signi�cantly positive at the 5%

signi�cant level in all windows. Consistent with the results from Figure 1 and Table 3, TCL

8

�rms signi�cantly outperformed other �rms around the election date.

In sum, our results are consistent with the view that political connections are valuable

to connected �rms. For connected �rms, the stock market reacted positively to favorable

news when the controlling shareholders were elected to the upper house. In contrast, non

TCL �rms su¤ered a loss in returns. The results indicate that the election victory conveyed

the information that the tycoons turned leaders were likely to in�uence public policies for

their own bene�ts. Furthermore, their rule would reduce the favors granted to non TCL

�rms.

[Insert Figure 1, Table 3, and Table 4 here]

4.2 The long-term e¤ect

In this section, we investigate what happened to TCL �rms in the longer term. If TCLs

have implemented policies to enrich themselves while holding top o¢ ce, we should observe

abnormal returns to TCL �rms. To measure the long-term e¤ect of political power on

the market valuation, we employ the standard buy and hold returns (BHRs) approach as

suggested by Barber and Lyon (1997). We calculate the BHR of the following two portfolios:

the �rst portfolio includes only TCL �rms, and the second portfolio includes only non TCL

�rms. The percentage buy-and-hold return )(BHR) for �rm i is

BHRiT =

�TQ

t=start(1 + rit)� 1

�� 100%;

where start is the month when the election campaign began (November 2000), T is the

end of the 12th, 24th, or 36th month window, rit is the monthly return for �rm i in month t .

The BHR measures the return an investor obtains by investing in a portfolio from the �rst

month of the election campaign (November 2000), and selling it at the end of the twelfth,

twenty fourth, and thirty sixth month.

The monthly stock returns are dividend included and obtained from the Datastream.

We exclude 14 �rms that have the mean 36-month BHR of greater than 1000%.

Figure 2 presents the mean equally weighted BHR for the two portfolios: TCL �rms

relative to non TCL �rms at the end of the twelfth, twenty-fourth, and thirty-sixth month.

9

Until the end of the �rst twelve months, the mean BHR for the portfolio of TCL �rms is

41.4% which is not statistically signi�cantly di¤erent from the mean BHR for the portfolio of

non TCL �rms is 19.7%. From this point onwards, however, TCL �rms earn extraordinary

returns, and signi�cantly outperform non TCL �rms. The mean 24-month BHR for the

portfolio of TCL �rms is 107.1%, which is signi�cantly (at the 5% level) higher than that

of the portfolio of non TCL �rms of 55%. The returns at the 36-month holding period on

TCL �rms are even more remarkable. Our results show that the mean BHR for TCL �rms

is 368.1%, while the mean BHR for non TCL �rms of 147.99%. The mean di¤erence is

strongly signi�cant at the 1% level. The magnitude of this political power is economically

signi�cant. The results show that the political power accounts for about 52.1% incremental

gain in the mean 24-month BHR and about 220.1% in the mean 36-month BHR for TCL

�rms over non TCL �rms. Consistent with many studies in the literature, our results show

that the median di¤erences are not statistically signi�cant at the conventional levels.

The results that the mean BHR for TCL �rms is not greater than non TCL �rms during

the �rst 12 months, but is signi�cantly greather than non TCL �rms afterwards is consistent

with our conjecture in Section 2. The market recognized that the TCLs�political power

was shaky during their �rst year in o¢ ce due to the corruption allegation. But, once their

political power was secure, TCL �rms experienced excess returns of 52.1% and 220.1% over

the holding period of 24-month and 36-month, respectively.

We perform a regression analysis to control for the size and industry e¤ect (Lyon, Barber,

and Tsai (1999)). Table 5 presents the ordinary least squares (OLS ) regression results. The

dependent variables are the 12th, 24th, and 36th month BHRs. The main independent

variable of our interest is TCL which is a dummy variable set to one if a �rm�s major

shareholder is one of the tycoons-cum-leaders. Other control variables are �rm size, leverage

and 11 industry dummies.

The regression results are consistent with the results in Figure 1. The multivariate re-

gression results show that TCL �rms have a more statistically signi�cant stock performance

increase after the 12th month after TCL took o¢ ce. The magnitudes of the di¤erences in

BHR between TCL and non TCL �rms are similar to the univariate results even after con-

10

trolling for the �rm speci�c factors that may a¤ect stock return performance. The results

show that TCL �rms outperform non TCL �rms by 58.6% two years after TCLs took o¢ ce,

and 225% three years after TCLs took o¢ ce.

In unreporteesults, we run a robustness check by including the two �rm characteristics

that might a¤ect expected returns as suggested by Lyon, Barber, and Tsai (1999). First,

we use the market capitalization as an alternative measure of �rm size. Second, we include

the ratio of market value of equity to book value of equity (MB) as a control variable. We

�nd that our results are not a¤ected by these two �rm characteristics.

[Insert Figure 2 and Table 5 here]

5 Conclusion

We investigate the valuation change of politically-connected �rms in Thailand and �nd that

stock prices of connected �rms jumped right after the controlling shareholders of the �rms

won the election. The market value of the �rms has continued drifting upward for the next

two years. In contrast, other �rms su¤er a lost in stock returns during the election date.

The results suggest that political connections are an important factor in doing big business

in Thailand. Overall, the results indicate that investors appear to believe that the rule by

Thaksin�s administration would bene�t their connected �rms. Further, the continuing drift

of price upward suggests that at the beginning investors might underestimate the ability

of the tycoon-cum-leaders to create private bene�ts for their connected �rms, but over

time investors found out that the tycoons were keen on extracting economic rents to enrich

themselves. In other words, the extraordinary excess returns on connected �rms imply that

public o¢ ce was probably used to enrich the leaders. This result is consistent with the view

that is put forwarded by Morck, Wolfenzon, and Yeung (2005) that big business owners

often seek to establish political in�uence to keep or even extend their economic power.

Our results are also related to a growing literature on family �rms. We, however, analyze

a di¤erent aspect of the founder and the controlling shareholder, i.e., the transition from top

business leader to top political leader. In this respect, our investigation also complements

11

growing empirical research on the e¤ect of political in�uence exerted by business leaders.

For example, Charumilind, Kali, and Wiwattanakantang, Faccio, Masulis, and McConnell

(forthcoming), Fan, Rui, and Zhao (2006), and Khwaja and Mian (2005) show that business

owners seek to establish political connections and such connections can facilitate borrowing.

Morck, Stangeland, and Yeung (2000) and Johnson and Mitton (2003) study Canada and

Malaysia, respectively; and document a similar evidence that international trade and �nance

policies were implemented with the intention of steering resources to connected �rms.

12

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Table 1: List of the firms owned by tycooons-cum-leaders (TCLs)

Company Family group Title in the government/ reshuffled governments

ADVANCED INFO SERVICE SHINAWATRA Prime MinisterAMARIN PLAZA THEPKANJANA Minister of Justice/ Deputy Prime Minister's Office/ Ministry of EnergyAMERICAN STANDARD SANITARY SRIVIKORN Secretary of Minister of Finance/ Deputy Secretary of Prime MinisterBEC WORLD MALEENONT Deputy Minister of Transport/ Deputy Minister of InteriorC.P. SEVEN ELEVEN JIARAVANON Deputy Minister of Commerce/ Minister of CommerceCHAROEN POKPHAND FOODS JIARAVANON Deputy Minister of Commerce/ Minister of CommerceCVD ENTERTAINMENT MALEENONT Deputy Minister of Transport/ Deputy Minister of InteriorITV SHINAWATRA Prime MinisterJASMINE INTERNATIONAL BODHARAMIK Minister of Commerce/ Minister of EducationM-LINK ASIA CORPORATION SHINAWATRA Prime MinisterSC ASSET CORPORATION SHINAWATRA Prime MinisterSHIN CORPORATION SHINAWATRA Prime MinisterSHIN SATELLITE PUBLIC SHINAWATRA Prime MinisterSIAM MAKRO JIARAVANON Deputy Minister of Commerce/ Minister of CommerceSINO-THAI ENGINEERING & CONSTRUCTION CHARNVIRAKUL Deputy Minister of Health/ Deputy Minister of CommerceSTP&I CHARNVIRAKUL Deputy Minister of Health/ Deputy Minister of CommerceTHAI FILM INDUSTRIES MAHAGITSIRI Executive of the government's partyTHAI O.P.P. MAHAGITSIRI Executive of the government's partyTHAI SUGAR TERMINAL THEPKANJANA Minister of Justice/ Deputy Prime Minister's Office/ Ministry of EnergyTHAILAND CARPET MANUFACTURING SRIVIKORN Secretary of Minister of Finance/ Deputy Secretary of Prime MinisterTT&T BODHARAMIK Minister of Commerce/ Minister of EducationUNITED BROADCASTING CORPORATION JIARAVANON Deputy Minister of Commerce/ Minister of CommerceVINYTHAI JIARAVANON Deputy Minister of Commerce/ Minister of Commerce

The table lists of the non-financial firms owned by tycoons-cum-leaders listed in Stock Exchange of Thailand (SET). A TCL firm is the firm that one of its large shareholders is the member of Thaksin’s administration during our sample period.

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Table 2: Distribution of sample firms by industry

Industry classification No. % No. % No. % No. % No. % No. %

Petroleum 0 0.0% 6 2.8% 0 0.0% 6 2.6% 0 0.0% 7 2.8%Consumer durables 1 5.3% 32 14.7% 1 4.8% 36 15.7% 1 4.3% 40 16.0%Basic industry 3 15.8% 31 14.3% 3 14.3% 30 13.0% 3 13.0% 33 13.2%Food/Tobacco 1 5.3% 34 15.7% 1 4.8% 35 15.2% 2 8.7% 36 14.4%Construction 3 15.8% 20 9.2% 3 14.3% 20 8.7% 3 13.0% 21 8.4%Capital goods 0 0.0% 11 5.1% 1 4.8% 12 5.2% 1 4.3% 11 4.4%Transportation 1 5.3% 5 2.3% 1 4.8% 5 2.2% 1 4.3% 6 2.4%Utilities 6 31.6% 6 2.8% 7 33.3% 7 3.0% 7 30.4% 8 3.2%Textiles/Trade 2 10.5% 29 13.4% 2 9.5% 30 13.0% 2 8.7% 30 12.0%Services 0 0.0% 16 7.4% 0 0.0% 17 7.4% 0 0.0% 21 8.4%Leisure 2 10.5% 22 10.1% 2 9.5% 24 10.4% 2 8.7% 26 10.4%Real Estate 0 0.0% 5 2.3% 0 0.0% 8 3.5% 1 4.3% 11 4.4%

Total 19 100.0% 217 100.0% 21 100.0% 230 100.0% 23 100.0% 250 100.0%

Non TCL firms

2001 2002 2003

TCL firms Non TCL firms TCL firms Non TCL firms TCL firms

The table reports the distribution of sample firms. TCL firms are the firms owned by the tycoons who are in public office. Non TCL firms are other firms. The industries are defined following Campbell (1996).

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Figure 1: Cumulative Abnormal Returns (CARs) around the election date

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

-1 0 1 2

CA

R (%

)

TCL firms Other firms

Table 3: Cumulative abnormal returns (CARs) around the election date

Event Window Difference in mean

Difference in median

t -statistics (t -test)

Mean Median Mean Median Mean Median

(1) (2) (3) (4) (5) (6) (3) - (5) (4) - (6)

CAR (0, +1) -1.134 -0.730 1.244 -0.220 -1.327 -0.800 2.571 0.580 2.031** 1.518*

CAR (0, +2) -0.956 -0.580 1.924 -0.090 -1.191 -0.590 3.114 0.500 2.447** 1.917*

All firms TCL firms Other firms z -statistics (Wilcoxon rank-sum

test)

The table reports univariate tests of cumulative abnormal returns (CARs) around the election date (January 6, 2001). We use the first trading day after the general election as the event date (January 8, 2001). We compute abnormal returns using the market model. We estimate the market model by using 200 trading days of daily return data ending 21 days before the event date (February 15, 2000-December 4, 2000). We use SET Index return as the benchmark. The daily abnormal return is accumulated to obtain the cumulative abnormal return (CAR) from the event date to day +t after the event date. All returns are in percentages. For each event window, the table reports t-statistics of the t-test and z-statistics of the Wilcoxon rank-sum (Mann-Whitney) test for the tests of difference in means and medians, respectively. *, **, and *** denote statistical significance at the 10%, 5%, and 1% levels, respectively.

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Table 4: Regression of cumulative abnormal returns (CARs) around the election date

(1) (2) (3) (4)

TCL 0.034** 0.034** 0.036** 0.035**(2.12) (2.12) (2.38) (2.27)

Size -0.004 -0.004 -0.002 -0.001(-0.46) (-0.47) (-0.29) (-0.12)

Leverage 0.004 0.005 0.013 0.005(0.32) (0.35) (0.79) (0.34)

Market-to-book equity -0.0004 0.004***(-1.02) (12.26)

Constant 0.055 0.055 0.009 0.001(1.13) (1.14) (0.28) (0.03)

Industry dummies Yes Yes Yes Yes

Number of observations 226 226 226 226Adjusted R2 0.109 0.109 0.081 0.151

CAR (0, +1) CAR (0, +2)

The table reports regressions of cumulative abnormal returns (CARs) around the election date (January 6, 2001). We use the first trading day after the general election as the event date (January 8, 2001). We compute abnormal returns using the market model. We estimate the market model by using 200 trading days of daily return data ending 21 days before the event date (February 15, 2000-December 4, 2000). We use SET Index return as the benchmark. The daily abnormal return is accumulated to obtain the cumulative abnormal return (CAR) from the event date to day +t after the event date. TCL is a dummyvariable that takes value of one if the firm owned by tycoons-cum-leaders, zero otherwise. The list of TCLs is presented in Table 3-1. Size is the logarithm of book value of total assets. Leverage is the ratio of total debt to total assets. Market-to-book equity is the ratio of market value of equity to book value ofequity. All values of the control variables are as of December 2001. Numbers in parentheses are t-statistics from heteroskedasticity-robust standard errors with clustering at the firm level. *, **, and *** denote statistical significance at the 10%, 5%, and 1% levels, respectively.

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Figure 2: Buy-and-Hold Returns The figure plots the mean equally weighted buy-and-hold returns for 12th, 24th, and 36th month after the beginning of the election campaign (November 2000). TCL firms are the firms owned by the tycoons who are in public office. Non TCL firms are other firms.

0%

50%

100%

150%

200%

250%

300%

350%

400%

Buy-

and-

Hol

d R

etur

ns (%

)

12th month 24th month 36th month

TCL firms Non TCL firms

Table 5: Buy-and-Hold Returns (BHRs): regression analysis

12-month holding period

24-month holding period

36-month holding period

(1) (2) (3)

TCL 0.332 0.586** 2.250***(1.43) (2.56) (4.57)

Size -0.073 -0.091 0.016(-1.20) (-0.76) (0.06)

Leverage 0.017 -0.236 -0.369(0.10) (-1.25) (-0.91)

Constant 0.682 1.229* 2.194(1.63) (1.74) (1.45)

Industry dummies Yes Yes Yes

Adjusted R2 0.207 0.172 0.227Number of observations 235 235 235

The table reports coefficient estimates of OLS regressions. The dependent variable is the equally weighted buy-and-hold returns (BHRs) for 12th, 24th, and 36th month after the beginning of the election campaign (November 2000). TCL is a dummy variable that is set to one if the firm is owned by the tycoons who are in public office, and zero otherwise. Size is the logarithm of total assets. Leverage is the ratio of total debt to total assets. Numbers in parentheses are t-statistics from heteroskedasticity-robust standard errors with clustering at the firm level. *, **, and *** denote statistical significance at the 10%, 5%, and 1% levels, respectively.

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Appendix 1: The road to economic and political power of Thaksin Shinawatra

Establishing the business empire1983 Thaksin and his wife, Pojaman, founded the Shinawatra Computer to run a computer leasing business

1985 Thaksin was granted the paging concession (Paclink joint venture with Pacific Telesis) September 1985 Thaksin was granted 20-year concession to operate a cable TV chanel, IBCApril 1986 Thaksin founded the Advanced Info Service (AIS)1987 Thaksin resigned from the police while he was a lieutenant colonel and became the full-time

businessmanMarch 1990 Thaksin was granted a 20-year concession to operate a mobile telephone services (AIS)August 1990 Shinawatra Computer went IPO and listed in the Stock Exchange of Thailand July 1991 Thaksin founded Shin Satellite to run the satellite concessionJanuary 1994 Shin Satellite was listed on the Stock Exchange of Thailand

Entering politicsOctober 1994 Thaksin handed over day to day management of his companies to his wife and entered politics November 1994 - February 1995 Thaksin was appointed as the Minister of Foreign Affairs

May 1995 - November 1996 Thaksin became the leader of the Palang Dharma PartyJuly 1995 - August 1996 Thaksin was appointed as the Deputy Prime MinisterAugust 1997 - November 1997 Thaksin was appointed as the Deputy Prime MinisterJuly 1998 Thaksin and his business folks founded the Thai Rak Thai Party (TRT). Thaksin became the party leader

Thaksin Shinawatra's administration

Novermver, 2000 The TRT began running its first election campaignJanuary 6, 2001 The general election, and the Thai Rak Thai Party won 248 out of 500 seatsFebruary 9, 2001 Thaksin was nominated as Thailand’s 23rd Prime Minister December 2000 - August 2001 Thaksin was charged by the National Counter Corruption Commission (NCCC) and tried by the

Constitutional Court for asset concealment while holding top office in 1997-1998. He was declared innocent in August 2001

June 2001 1st cabinet reshuffle October 2001 2nd cabinet reshuffleMarch 2002 3rd cabinet reshuffle October 2002 4th cabinet reshuffle November 2002 5th cabinet reshuffle February 2003 6th cabinet reshuffle November 2003 7th cabinet reshuffle March 2004 8th cabinet reshuffle June 2004 9th cabinet reshuffle October 2004 10th cabinet reshuffle

Sources: The Office of the Election Commission of Thailand (http://www.ect.go.th)The Office of the National Counter Corruption Commission (http://www.nccc.thaigov.go.th)The Secretariat of the Cabinet (http://www.cabinet.thaigov.go.th)The Shin Corporation Group's website (http:://www.shinawatra.com)Phongpaichit, Pasuk and Chris Baker, 2003, Thaksin: The Business of Politics in Thailand (Silkworm Books, Bangkok, Thailand)

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