The Impact of Political Events on the Firm Value: Evidence from the 2012 Korean Presidential Election

Abstract

Korea had an important election for the President in December, 2012. Geunhye Park, the ruling party candidate, Jaein Moon, the opposition party candidate, and Cheolsoo Ahn, the independent candidate, ran for the presidency and finally Park was elected as the president. This paper empirically examines the relationship between political events and stock price of related firms using Korean case of presidential election of 2012 with a sample of 52 related firms. These firms are categorized into three groups of political portfolio depending on whether they are favorable for the presidency of Park, Moon, or Ahn. For these three groups, the daily stock price changes demonstrate that political events are capitalized on in stock prices. Five major political events are used for the tests: the announcements of Park’s candidacy, Moon’s candidacy, Ahn’s candidacy, Ahn’s voluntary resignation, and the result of the presidential election. Under political events which are favored for Park, the stock prices of Moon-favored or Ahn-favored firms show a negative tendency, while the stock prices of Park-favored firms fluctuate up and down unexpectedly. And same reactions are shown under a political event which is favored for the other two candidates. The result suggests that the stock prices of the firms in political portfolios are significantly influenced by the political events which are related to the presidential election during the election period.