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Do Political Connections Affect Firm Performance? Evidence from a Developing Country

Author

Listed:
  • Abubakr Saeed
  • Yacine Belghitar
  • Ephraim Clark

Abstract

We investigate how politicians serving on the boards of directors influence firm performance. The results show a negative relationship between political connections and firm performance. Specifically, politically connected firms underperform nonconnected firms directors by almost 17 percent and 15 percent based on return on assets and return on equity, respectively. By stratifying the sample duration into two periods based on the political environment, we find that this effect is more pronounced in autocratic as opposed to democratic regimes. Finally, our results also suggest that the performance of connected firms with more growth opportunities is not affected by political connections.

Suggested Citation

  • Abubakr Saeed & Yacine Belghitar & Ephraim Clark, 2016. "Do Political Connections Affect Firm Performance? Evidence from a Developing Country," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(8), pages 1876-1891, August.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:8:p:1876-1891
    DOI: 10.1080/1540496X.2015.1041845
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    Cited by:

    1. Li, Xiao-Lin & Li, Jingya & Wang, Jia & Si, Deng-Kui, 2021. "Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 99(C).
    2. Will Bartlett, 2023. "The performance of politically connected firms in South East Europe: state capture or business capture?," Post-Communist Economies, Taylor & Francis Journals, vol. 35(4), pages 351-367, May.
    3. Pochara Arayakarnkul & Pattanaporn Chatjuthamard & Suntharee Lhaopadchan & Sirimon Treepongkaruna, 2022. "Corporate governance, board connections and remuneration," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(4), pages 795-808, July.
    4. Rocca, Maurizio La & Fasano, Francesco & Cappa, Francesco & Neha, Neha, 2022. "The relationship between political connections and firm performance: An empirical analysis in Europe," Finance Research Letters, Elsevier, vol. 49(C).
    5. Ruba Khalid Shira, 2024. "The Impact of Political Involvement on Firms’ Financial Performance," International Journal of Economics and Financial Issues, Econjournals, vol. 14(3), pages 33-39, May.
    6. Lien‐Wen Liang & Tsui‐Jung Lin & Hui‐Fun Yu & Ya‐Wen Li, 2022. "The impact of political connection and board diversity on company performance: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2347-2357, September.
    7. Majeed, Muhammad Ansar & Yan, Chao & Zhong, Huijie, 2022. "Do firms manipulate earnings after winning public-private partnership bids? Evidence from China," Emerging Markets Review, Elsevier, vol. 51(PB).
    8. Liu, Hengxu & Zhao, Wenxi, 2023. "The role of political connections in bad times: Evidence from the COVID-19 pandemic," Economics Letters, Elsevier, vol. 224(C).
    9. Ishtiaq Ahmad, 2017. "Do Group Affiliated And Unaffiliated Firms Hold Cash Differently? The Case Of Pakistan," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 373-384, July.
    10. Rui Wang & Yi-Na Li & Jiuchang Wei, 2022. "Growing in the changing global landscape: the intangible resources and performance of high-tech corporates," Asia Pacific Journal of Management, Springer, vol. 39(3), pages 999-1022, September.
    11. Thanakorn Suriyapongprapai & Pattanaporn Chatjuthamard & Arnat Leemakdej & Sirimon Treepongkaruna, 2022. "Stakeholder engagement, military ties, and firm performance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(2), pages 469-479, March.
    12. Wang, Yizhong & Yao, Chengxue & Kang, Di, 2019. "Political connections and firm performance: Evidence from government officials' site visits," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    13. Nesma Ali & Boris Najman, 2019. "Cronyism, firms’ Productivity and Informal Competition in Egypt," Working Papers 1292, Economic Research Forum, revised 2019.
    14. Muhammad Arsalan Hashmi & Abdullah & Rayenda Khresna Brahmana, 2022. "Family monitoring and the adverse consequences of political connections: does it vary over family generations?," Management Research Review, Emerald Group Publishing Limited, vol. 46(6), pages 832-851, September.
    15. Mohieddine Rahmouni, 2021. "Determinants of capacity utilisation by firms in developing countries: evidence from Tunisia," International Journal of Technological Learning, Innovation and Development, Inderscience Enterprises Ltd, vol. 13(3), pages 212-245.
    16. Yi, Shangkun & Wang, Jian & Wang, Xiaoting & Feng, Hongrui, 2022. "CEO political connection and stock sentiment beta: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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