2005 CUHK International Conference on Corporate Governance in China and Asia

1. 2005 CUHK International Conference on Corporate Governance in China and Asia Discussion of: Tycoons Turned Leaders: Market Value of Political Connections Authored by: Pramuan Bunkanwanicha and Yupana Wiwattanakantang Discussant: Karl Lins University of Utah

2. Research Question What this paper does in big picture terms: • The authors investigate the value of political connections by analyzing the firms owned by business tycoons who subsequently assume top level positions in public office, called tycoons-cum-leaders (I will call them TCLs in this discussion). • They measure the connections via ownership and not via the board of directors or friendships. • Focus is on rent seeking and not on cronyism Findings: • Both short term and medium term post-election market valuation of TCL firms is higher than for firms owned by other tycoons

3. Discussion/Comments Since the paper’s stated focus is on rent seeking, it would be interesting to see whether a tycoon’s ultimate cash flow stake in the firm matters • Arguably, firms in which TCLs hold large ultimate equity stakes could go up more in value if the TCL is going to be particularly concerned about a firm in which he/she has the maximum potential to realize a wealth gain. • One way to capture this is to interact the TCL dummy with the baht value of the ultimate cash flow stakes held by the tycoon • It would also be possible to use a percentage ultimate cash flow stake held by the tycoon measure, but a raw baht level would be more apt to capture the wealth potential

4. Discussion/Comments It would be interesting to test whether relatively more distressed (or worse performing) firms owned by TCLs did better after the election • If the authors’ story is true, it seems likely that firms that are underperforming the most, but are controlled by TCLs, would be the ones that in percentage terms should do the best. • Note that only 23 of 250 firms are TCL firms • The authors remove 19 firms because they are distressed • Were any of these 19 owned in some way by TCLs? Another way to get at testing this idea is to interact the TCL dummy with distress proxies such as market to book ratio (or its inverse) in the regressions.

5. Discussion/Comments Results might be driven by size, despite the fact that size is a control variable in the regressions • From Table 1 (summary stats), it appears that in 2001: • A total of 298 billion baht capitalization is spread among 19 TCL firms for an average size of 15.7 billion baht for TCL firms • A total of 772 billion baht capitalization is spread among 217 non-TCL firms for an average size of 3.6 billion baht • TCL firms are much larger than the others • This could be why size, which seems to always show up significantly in corporate finance regressions, does not do so in the models of this paper • Suggests that TCL effects could somewhat be considered as size effects

6. Discussion/Comments Some Minor Quibbles: Sentences are often too strong: • For instance, on page 18, “The results confirm prior findings that that the positive value effect of tycoon-cum-leader is entirely attributable to the owners’ political influences.” • There could conceivably be unmodeled effects that account for part of the value effect such that it is not “entirely” due to political influence • A few grammatical errors exist – suggests a solid proofreading • Tables are sometimes mislabeled between text and table itself

7. Overall Thoughts Overall, I think that the paper is interesting • I always enjoy reading papers that make use of a clean natural experiment My primary big picture concern is that the result seems somewhat economically obvious. • Thus, documenting it may not shed sufficient new light on the value of political connections • That is, given all the studies that show the value lost when connections are weakened or severed, is there any reason to suspect, a priori, that this relation will be asymmetric. If not, then this set of tests and results mainly documents from another angle a well-known and fully believable result

8. Going Forward A different economic question to ask where the outcome may be less preordained: • As a next step (or separate paper): Did you look at government owned or controlled firms that are listed on SET? • It would be interesting economically to see whether the market thought that tycoon business leaders might inject some better business practices into these firms • Or, if the tycoons are exploitative, these firms could be expected to do worse if they will have their assets or growth prospects stripped away