Are political connections beneficial or harmful toward firms’ performance? A meta-analysis approach

Prasetyo, Khusnul; Nasution, Damai

doi:10.1108/cg-07-2021-0256

Cited by 7 publications

(4 citation statements)

References 94 publications

(155 reference statements)

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“…For example, some empirical evidence has found that PCs enhance a firm financial performance (Ding et al , 2014; Unsal, 2017; Wang et al , 2019; Maaloul et al , 2018; Idris et al , 2020; Joni et al , 2020; Prasetyo and Nasution, 2021). Some reasons articulated for this positive relationship are winning government contracts and concessions, access to external financing (Faccio et al , 2006; Goldman et al , 2013; Sadiq et al , 2019; Preuss and Königsgruber, 2021) and lower tax burdens (Chen et al , 2020).…”

Section: Introductionmentioning

confidence: 99%

Political connections and financial performance: the moderating role of director efficacy

Niazi

Othman

Chandren

2023

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Purpose Firm performance has become a thriving research field. However, a review of previous studies shows that the answers to several fundamental questions remain vague and require further investigation. Thus, the purpose of this study is twofold. The first is to determine the extent of the involvement of political connections (PCs) in Pakistani-listed companies, and the second is to examine the association between PCs and firm financial performance with director efficacy’s moderating role. Design/methodology/approach A data set of 221 non-financial companies listed on the Pakistan Stock Exchange for 10 years (2008–2017) was analysed using panel-corrected standard error regression. Additionally, the authors address endogeneity issue by using Hackman two-stage estimation and lagged variables regression. Findings The study found that PCs negatively affected the firm’s financial performance, and director efficacy as a moderator strengthened this relationship. The result is consistent with the political economy theory that argues that an unstable political system and a weak judicial system will strongly affect investors and their rights. Practical implications The impact of political influence on the corporate sector remains a concern for policymakers, regulators, investors, financial experts, auditors and academic researchers. This study’s findings are that an effective board of directors can strengthen the company’s best practices by controlling political connectedness to protect all the interested parties, particularly investors, and restore their confidence. Therefore, the results of this study can assist all stakeholders when a PCs exists to make the right decisions. Originality/value The study extends the literature in terms of theoretical contribution that uses an integrative approach to combine political economy theory, agency theory and resource dependence theory to address the moderating role of director efficacy with an association between PCs and firm financial performance. To the best of the authors’ knowledge, no extant research has investigated the association between PCs and firm financial performance using five aspects of PCs, along with moderator director efficacy.

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Section: Introductionmentioning

confidence: 99%

Political connections and financial performance: the moderating role of director efficacy

Niazi

Othman

Chandren

2023

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“…For example, these countries face stronger financing constraints, have fewer effective institutions to aid financial contracting and securing property rights, lack adequate collateral and other guarantees against borrowing, resort more often to informal finance, have highly concentrated ownership structures and less efficient markets and face higher business uncertainty and market volatility (Booth et al, 2001;Eldomiaty, 2007). It was found that political connections in both democratic and authoritarian nations tend to have a positive relationship with companies' performance (Prasetyo and Nasution, 2022). Further, strong socially woven political hierarchies and connections may weaken the beneficial properties of shareholder dominance; therefore, firms pursuing their interests in a more decentralized manner may outperform the rest (Allen et al, 2005).…”

Section: Introductionmentioning

confidence: 99%

Enforcement, corporate governance, and financial decisions

Mertzanis

Nobanee

Basuony

et al. 2023

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Purpose This study aims to analyze the impact of corporate governance on firms’ external financing decisions in the Middle East and North Africa (MENA) region. Design/methodology/approach The authors analyzed a unique set of panel data comprising 2,425 nonfinancial firms whose shares are traded on stock exchanges in countries in the MENA region. The authors fitted an ordinary least squares model to estimate the regression coefficients. The authors performed a sensitivity analysis using alternative measures of the critical variables and an endogeneity analysis using instrumental variable methods with plausible external instruments. Findings The results revealed that corporate governance characteristics of firms are strongly associated with their degree of leverage. They also showed that macrofinancial conditions, financial regulations, corporate governance enforcement and social conditions mitigate the impact of corporate governance on firms’ financing decisions. Research limitations/implications A larger sample size will further improve the results; however, this is difficult and depends on the extent to which increasing disclosure practices allow more corporate information to reach international databases. Practical implications This study provides new evidence on the role of corporate governance on firms’ financing decisions and documents the essential mitigating role of institutions, alerting managers to consider them. Originality/value This study is a novel attempt. Based on information from different data sources, this study explored the predictive power of corporate governance, ownership structures and other firm-specific characteristics in explaining corporate leverage in MENA countries. Overall, the analysis provides new evidence of the association between corporate governance and capital structure in the MENA region, highlighting the critical role of institutions.

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“…performance and valuation (Fisman, 2001;Shahzad et al, 2021;Prasetyo and Nasution, 2021), accounting performance (Boubakri et al, 2008), quality of earnings (Chaney et al, 2011), government investment decisions (Duchin and Sosyura, 2012;Schoenherr, 2019) and tax liability (Faccio, 2010;Khlif and Amara, 2019), there remains limited insights on potential effects of the political contributions on corporate risk-taking.…”

Section: Introductionmentioning

confidence: 99%

“…Although some past studies have explored the effect of PC on share prices (Brown and Huang, 2020; Child et al , 2021), innovation (Kim, 2018; Krammer and Jimenez, 2020); firm performance and valuation (Fisman, 2001; Shahzad et al , 2021; Prasetyo and Nasution, 2021), accounting performance (Boubakri et al , 2008), quality of earnings (Chaney et al , 2011), government investment decisions (Duchin and Sosyura, 2012; Schoenherr, 2019) and tax liability (Faccio, 2010; Khlif and Amara, 2019), there remains limited insights on potential effects of the political contributions on corporate risk-taking.…”

Section: Introductionmentioning

confidence: 99%

Corporate strategy, political contributions and corporate risk-taking

Halari

Ahmad

Ullah

et al. 2023

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Purpose Despite the importance and prevalence of corporate political activities in modern organizations, there remains limited insight on the potential relationship between political contributions and companies’ risk-taking activities. This study aims to examine the relationship between monetary political contributions of firms and corporate risk-taking activities in the context of unstable political and economic environments. Design/methodology/approach The authors use a two-step system GMM estimation to investigate the subject using a cross-country sample of 307 firms from 22 countries covered over 2002–2017. In line with previous studies, the authors control for various corporate governance mechanisms, firm-level factors and country-level characteristics. Findings The findings demonstrate that firms that make monetary political contributions exhibit lower levels of risk as measured by different proxies for risks, namely, systematic, idiosyncratic and total risk. Practical implications The results suggest that political contributions can be a useful mechanism to mitigate risk exposure. Also, the use of different risk measures and other factors for robustness fosters a better understanding of political connectedness in a more contextualized and dynamic manner. Originality/value This study seeks to contribute to the debate surrounding corporate strategy, political connectedness and corporate risk-taking by using actual monetary political contributions as an explicit measure of political connection. This study furthers scholarly understanding on the dynamics of corporate political activities using political contributions in monetary terms as a measure of political connectedness and its impact on risk-taking. Furthermore, the authors explore this topic using insights from nonmarket strategy literature and studies on political contributions.

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Are political connections beneficial or harmful toward firms’ performance? A meta-analysis approach

Cited by 7 publications

References 94 publications

Political connections and financial performance: the moderating role of director efficacy

Political connections and financial performance: the moderating role of director efficacy

Enforcement, corporate governance, and financial decisions

Corporate strategy, political contributions and corporate risk-taking

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