Examining the Relationship between Political Connections, Related Party Transactions, and Firm Value in Egyptian Listed Companies: Empirical Study

Abstract

The main objective of the current research is to examine the effect of political connections and related party transactions on firm value. Moreover, the moderating role of related party transactions on the relationship between political connections and firm value is investigated. The research sample covers a period of five years from 2014 to 2018, including 33 Egyptian firms listed in the Egyptian Stock Exchange, resulted in 165 firm-year observations. The results show that: first, there is a significant positive relationship between political connections and firm value measured by Tobin's Q. Second, there is a significant positive relationship between related party transactions related to assets including investments with associates and due from related parties and firm value. Third, related party transactions do not moderate the relationship between political connections and firm value as all interaction variables are insignificant.

The Moderating Impact of Political Connections on the Relationship Between Cash Holdings and Firm Viability in Emerging Economies: Empirical evidence from Egypt

“…Political connection is measured, in the current study, using two proxies. The first measure is political connectivity; "Pc-connect" which is a dummy variable defined as (1) if one or more of the firm's large shareholders is an institution under governmental control, also if the current CEO or chairman or any top administrators is or was a government official or a member of the parliament or a minister, or is "closely-related" to top politicians, and (0) otherwise at year "t" (Boubakri, Cosset & Saffar, 2008;Xie & Zhang, 2020;Abdel-Fattah, El-Shayeb & America, 2020). The second measure for political connections is political strength; "Pc-strength".…”