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The cost of presidential impeachment to politically connected firms

Published online by Cambridge University Press:  18 October 2019

Ha Na Lee
Affiliation:
Department of Behavioral Socioeconomics, Ewha Womans University, 203, Graduate School Building, 52, Ewhayeodae-gil, Seodaemun-gu, Seoul03760, Korea
B. K. Song*
Affiliation:
Department of Policy Studies, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul04763, South Korea
*
*Corresponding author. E-mail: [email protected]

Abstract

This study examines the ways political events can affect the stock prices of politically connected firms by studying one of the biggest corruption scandals in modern South Korean history, which led to the first-ever impeachment of a sitting president. We analyzed the stock returns of firms that donated money to foundations allegedly controlled by the president's confidante. We found that the abnormal stock returns of politically connected firms decreased when the president was removed from office. Using tick-by-tick stock price data, we were able to pinpoint the exact moments when the stock prices of firms that donated money fluctuated, as the president's fate was determined by the justices of the Constitutional Court.

Type
Research Note
Copyright
Copyright © Cambridge University Press 2019

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