Cronyism and capital controls: evidence from Malaysia

The onset of the Asian financial crisis in Malaysia reduced the expected value of government subsidies to politically connected firms, accounting for roughly 9% of the estimated $60 billion loss in their market value from July 1997 to August 1998. Firing the Deputy Prime Minister and imposing capita...

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Bibliographic Details
Published in:Journal of financial economics 2003-02, Vol.67 (2), p.351-382
Main Authors: Johnson, Simon, Mitton, Todd
Format: Article
Language:English
Subjects:
Capital
Capital controls
Corruption
Economic concentration
Economic crisis
Economics
Finance
Financial crises
Financial crisis
Financial economics
Foreign exchange controls
Heads of government
Institutions
Malaysia
Mohamad Mahathir
Patronage
Political connections
Prime ministers
Regulation
Stabilization policy
Studies
Subsidies
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Summary:The onset of the Asian financial crisis in Malaysia reduced the expected value of government subsidies to politically connected firms, accounting for roughly 9% of the estimated $60 billion loss in their market value from July 1997 to August 1998. Firing the Deputy Prime Minister and imposing capital controls in September 1998 primarily benefited firms with strong ties to Prime Minister Mahathir, accounting for roughly 32% of these firms’ estimated $5 billion gain in market value during September 1998. The evidence suggests Malaysian capital controls provided a screen behind which favored firms could be supported.
ISSN:0304-405X
1879-2774
DOI:10.1016/S0304-405X(02)00255-6