Hurting without Hitting: The Economic Cost of Political Tension

Yinghua He, Ulf Nielsson, Yonglei Wang

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Abstrakt

Political tension that causes diplomatic strain rarely escalates into direct violence or war. This paper identifies the economic effects of such non-violent political tension by examining Taiwan’s sovereignty debate. Non-violent events harming the relationship with mainland China lead to an average daily drop of 200 basis points in Taiwanese stock returns. The impact is more severe on firms openly supporting the Taiwanese pro-independence party. Through a series of tests, we show that this economic penalty is targeted at pro-independence firms that are economically exposed to mainland China via either investments or exports.
OriginalsprogEngelsk
TidsskriftJournal of International Financial Markets, Institutions & Money
Vol/bind51
Sider (fra-til)106-124
Antal sider19
ISSN1042-4431
DOI
StatusUdgivet - nov. 2017

Emneord

  • Political tension
  • Political connections
  • China
  • Taiwan

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