Are political connections valuable during a health pandemic crisis?

Due to the perceived threat of COVID-19 contagion, citizens worldwide were willing to accept extraordinary governmental interventions. This acceptance led to a concentration of power in the hands of the government through unlimited policy discretions. Against this backdrop, this study investigates whether there is a significant relationship between political connections and cumulative abnormal returns (CARs) during periods of global economic lockdown. Using a sample of 52 countries, this study employs event study methodology and cross-sectional regression in 2020. The results reveal that politically connected firms (PCONs) are positively and significantly associated with cumulative abnormal returns. However, the positive association between PCONs and CARs is attenuated in countries with strong institutions. Overall, the results suggest that investors assign higher valuations to PCONs because the latter is perceived as the biggest beneficiary from government policy discretion during COVID-19 economic lockdowns.