This paper examines the relationship between cronyism and capital controls using evidence from Malaysia. It finds that capital controls in Malaysia in September 1998 provided a mechanism for politically connected firms to benefit. During the Asian financial crisis, politically connected firms experienced a significant loss in market value, with about 9% of the loss attributed to the decline in the value of their political connections. After the imposition of capital controls, politically connected firms, particularly those linked to Prime Minister Mahathir, saw a significant increase in market value, with about 32% of the gain attributed to the increase in the value of their connections. The study suggests that capital controls allowed favored firms to receive support, which was not available to non-connected firms. The results are consistent with the view that capital controls can be used to support politically connected firms, a phenomenon known as cronyism. The study also finds that firms with political connections had worse stock returns during the early phase of the crisis but performed better after the imposition of capital controls. The evidence suggests that capital controls created a screen behind which politically connected firms could be supported. The study also finds that firms with political connections had a similar effect on stock prices as firms with higher debt ratios, indicating that political connections had a significant impact on firm performance. The study concludes that capital controls in Malaysia were used to support politically connected firms, highlighting the role of cronyism in economic policy.This paper examines the relationship between cronyism and capital controls using evidence from Malaysia. It finds that capital controls in Malaysia in September 1998 provided a mechanism for politically connected firms to benefit. During the Asian financial crisis, politically connected firms experienced a significant loss in market value, with about 9% of the loss attributed to the decline in the value of their political connections. After the imposition of capital controls, politically connected firms, particularly those linked to Prime Minister Mahathir, saw a significant increase in market value, with about 32% of the gain attributed to the increase in the value of their connections. The study suggests that capital controls allowed favored firms to receive support, which was not available to non-connected firms. The results are consistent with the view that capital controls can be used to support politically connected firms, a phenomenon known as cronyism. The study also finds that firms with political connections had worse stock returns during the early phase of the crisis but performed better after the imposition of capital controls. The evidence suggests that capital controls created a screen behind which politically connected firms could be supported. The study also finds that firms with political connections had a similar effect on stock prices as firms with higher debt ratios, indicating that political connections had a significant impact on firm performance. The study concludes that capital controls in Malaysia were used to support politically connected firms, highlighting the role of cronyism in economic policy.