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* Master degree student, Faculty of Accounting and Commerce, Chulalongkorn University,Bangkok 10330
Introduction
The issue of political connection firms has recently been highlighted by various studies. As firms
in the globalization world compete to maximize their profits, they have the utmost incentive to search for
economic rents and utilize the political connections. Several research have point out that political
connection and rent seeking activities by firms have negative effects on economic growth in both
developed and developing countries. The work of Desai and Olofsgård (2008), for instance, illustrates the
types of rents or political rewards that politically connected firms could extract from cronyism showing
evidence that the influential or politically connected firms in developing countries exhibit lower real
growth in sales and are less likely to issue new product lines or production facilities. In particular,
countries reported to have high level of corruption, poor quality of political institution, and low investor
protection are subjected to greater risk from the politicization of their economic activities. According to
Transparency International’s corruption perception index (CPI), in 1997 Thailand scored 3.06 and was
ranked 39th out of 52 countries. Its renowned long history of corruption, adding in its frequent political
instability, has made Thailand an inducing case to investigate politically connected firms.
The area in which past research on political connection has been focused is to investigate the
systematic exchanges of favors between politicians and firms or to find whether political connection
creates additional value to the firms. The studies of politically connected firms in Thailand have been
carried out along the same line; the overall answer to the question however remains rather inconclusive.
Bunkanwanicha and Wiwattanakantang (2008) and Imai (2006) reported strong evidences of politically
connected benefits the firms gain through several accounting and stock performances. On the other hand,
Chantrataragul (2007) indicated a mixed result and Udomworarat (2005) shows a contrast conclusion that
the politically connected firms do not gain value added benefits from their political connections. The
explanation for the deviation of the results of these previous researches perhaps lies in the different periods
of study and the complications due to the subjectivity in analyzing the issue of political connection. This
study tries to investigate the politically connected firms in Thailand by extending the period of study to
1998-2008, providing a new set of database of political connection, and applying different methodology of
value added analysis as opposed to looking at the stock returns and firm performances.