Can Political Connections of Independent Directors Improve Firm Performance? Evidence of Chinese Listed Manufacturing Companies Over 2008 – 2013

Abstract

The paper investigates the effect of the political connections of independent directors on firm performance by choosing the panel data consisting of 2994 firm-year observations in Chinese listed manufacturing companies during 2008-2013 as the sample. Empirical analysis by adopting multiple regression analysis based on OLS with SPSS19.0 makes a new finding, i.e., in manufacturing companies in China, there is a positive relationship between the political connections of independent directors and firm performance measured by ROE and EPS. Further investigation shows that the richness of independent directors' political connections improves firm performance by providing more resources instead of inputting extra knowledge, ideas or perspectives. Therefore, the political connections of independent directors have potential negative effects on firm's long-termed competitive edge, since current richer resources would lower the recognition of the top executives on the importance of enhancing internal core competence.