Military, coup, capitalism

1 08 2022

PPT came across an academic article recently that deserves some attention.

Military Political Connection and Firm Value—Empirical Evidence from a Natural Experiment in Thailand” is by four scholars attached to Guangxi University, Jingjing Tang, Haijian Zeng, Fangying Pang, and Lanke Huanga. It is in the journal Emerging Markets Finance and Trade, Volume 58, Number 7, 2022.  The paper is behind a paywall at this quite highly-ranked journal. That said, the journal seems to have done little to improve the expression and the copy-editing seems to have been rudimentary. Even so, there are points made in the highly statistical article that deserve discussion.

In Thailand, they found 638 “military politically connected listed firms” or 24.7% of the total sample of 1,948 firms (p. 1903). “Military politically connected” means directors who had a military or police background. It was found that “the share prices of military and nonmilitary politically connected firms increase during the event window [post-2014 coup], but the performance of share prices of the former is better than that of the latter” (p. 1904).

“This empirical evidence suggests that the market has responded positively to the military coup and that the positive performance of the stock market is more concentrated in firms with military political connections than those without” (p. 1904). The paper adds that “When the civilian [government] are in power, the military political correlation effect is negative for the firms. The positive effect can be significantly reflected only when the military is in power” (p. 1906).

The authors state that “after the military coup in 2014, the intensity of military political connections and the size of the board of directors increases…. This situation shows that, when the military regains power, the firms will recruit personnel with military backgrounds in the board of directors” (p. 1908).

The military connection also “means military political connection firms add more funds to capital investment and R&D after military coup, so the firm’s value increase.”They conclude: “given that the military controls the political power, directors with military backgrounds can provide enterprises with ‘protective umbrellas’ in their operation and acquire the convenience of management and resource allocation, thereby increasing the firm value.”

Having military “protectors” on company boards during the long periods of military and military-backed governments in Thailand is not new; in fact this has been a defining characteristic of Thailand’s capitalism. The other “protection,” perfected by the Sino-Thai tycoons, is sucking up to the monarchy with donations, supplication, and free advertising.


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