The Impact of Election on Stock Market Returns of Government-Owned Banks: The Case of Indonesia, Malaysia and Thailand

Manuscript type: Research paper Research aims: This paper investigates whether stock market returns of government-owned banks and private banks in Indonesia, Malaysia and Thailand differ during the elections period from year 2000-2013. Design / Methodology / Approach: Using event study methodology, cumulative average abnormal return (CAAR) of 30 banks in Indonesia, Malaysia and Thailand were calculated. For robustness test, regression analysis using CAAR as its dependent variable was conducted. Research findings: Results show that during elections, there is a significantly positive CAAR for both types of banks. However, CAAR for private banks is lower and less significant when compared to government-owned banks. This indicates that government-owned banks respond more to election results than private banks do. Theoretical contribution / Originality: While past studies usually used regression analysis to measure the effect of government ownership on banks in a longer horizon, their effect in the short-horizon has not been well-researched. This research fills in this gap by using the event study methodology to capture its effect in the short-horizon. Practitioner/ Policy implications: The result of this study will benefit investors as it may help them better understand and evaluate the political impact on the banking industry during an election. Research limitation/Implications: Firstly, survivorship bias analysis cannot be conducted due to the lack of information on inactive stocks. Secondly, this study could not run a separate analysis for each country as there was a total sample of only 30 firms which is the minimum requirement for a reliable statistical analysis.