Do Politically Connected Boards Affect Firm Value?

Goldman, Eitan; Rocholl, Jörg; So, Jongil

doi:10.1093/rfs/hhn088

Cited by 1,058 publications

(454 citation statements)

References 22 publications

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“…Crony capitalism also suggests that political leaders use their power to create rents for their families' and relatives' businesses. Empirical evidence supporting these predictions prevails both in the US and other countries (e.g., Agrawal and Knoeber 2001, Krozner and Stratmann 1998, Goldman, Rocholl, and So 2009, Cooper, Gulen, and Ovtchinnikov 2010, Fisman, 2001, Hellman, Jones and Kaufmann 2000, Johnson and Mitton 2002, Faccio 2006). For example, using an event study approach, Fisman (2001) and Faccio (2006) show that political connections are positively associated with firm value, which Faccio, Masulis, and McConnell (2006) and Claessens, Feijen, and Laeven (2008) suggest arises from preferred access to credit, regulatory favours, and government financial assistance.…”

Section: Introductionmentioning

confidence: 90%

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Cao¹,

Pan

Qian

et al. 2017

Journal of Corporate Finance

115

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Previous theoretical and empirical studies suggest that CEOs' political connections are valuable to firms. We examine whether such connections become entrenched if the expected political capital fails to materialize and the firm lacks other types of political power. Using a sample of listed non-SOEs in China, we show that politically connected CEOs have a lower probability of turnover and cause a weaker turnover-performance sensitivity than non-politically connected CEOs. Further analyses show that these turnover patterns are not consistent with alternative explanations, such as superior managerial ability, being a member of controlling families or being promoted from the inside. The turnover patterns are less pronounced in firms with alternative political power, such as connected boards or being vital to the local economy. Following the turnover of politically connected CEOs, firm performance does not necessarily undergo significant improvement. Our results call for new theories that comprehend the real effects of political connections. AbstractPrevious theoretical and empirical studies suggest that CEOs' political connections are valuable to firms. We examine whether such connections become entrenched if the expected political capital fails to materialize and the firm lacks other types of political power. Using a sample of listed non-SOEs in China, we show that politically connected CEOs have a lower probability of turnover and cause a weaker turnover-performance sensitivity than non-politically connected CEOs. Further analyses show that these turnover patterns are not consistent with alternative explanations, such as superior managerial ability, being a member of controlling families or being promoted from the inside. The turnover patterns are less pronounced in firms with alternative political power, such as connected boards or being vital to the local economy. Following the turnover of politically connected CEOs, firm performance does not necessarily undergo significant improvement. Our results call for new theories that comprehend the real effects of political connections.JEL classifications: G32, G34, G38

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Section: Introductionmentioning

confidence: 90%

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Cao¹,

Pan

Qian

et al. 2017

Journal of Corporate Finance

115

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“…There is, however, strong evidence across many countries that firms' political connections are associated with improved operational (e.g., returns on equity and investment) and stock market performance (for overviews, see Faccio 2006Faccio , 2010Goldman et al 2009a;Niessen and Ruenzi 2010 One interesting approach to establish such effects was pioneered by Roberts (1990). He exploited the unexpected death of US Senator Henry Jackson as the basis of an event study evaluating how it affected stock prices of his 'constituent interests'.…”

Section: Public Versus Private Interests: Empirical Evidencementioning

confidence: 99%

Moonlighting Politicians: A Survey and Research Agenda

Geys

Mäuse²

2013

The Journal of Legislative Studies

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Elected representatives in many countries are legally allowed to carry out (un)paid jobs in addition to their political mandate, often referred to as 'moonlighting'. Despite the important selection and incentive effects such outside positions might engender, academic studies evaluating the prevalence, desirability and/or consequences of politicians' moonlighting have remained relatively scarce; often due to severe data restrictions. In recent years, however, more stringent disclosure rules have increased data availability, and large-sample analyses are becoming increasingly feasible. Besides surveying recent empirical contributions to this developing research field, this paper also outlines unresolved issues and thereby develops an agenda for future enquiry.

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“…On the one hand, some empirical studies find that the benefits of political connections are i) an easier access to financial resources such as bank loans or others funds at more convenient conditions (Charumilind et al, 2006;Claessens et al, 2008;Fraser et al, 2006;Khwaja and Mian, 2005;Li et al, 2008); ii) a build up confidence in the legal system (Li et al, 2008); iii) an improved performance (Johnson and Mitton, 2003); iv) a higher probability of being bailed out ; v) an increase in firm value by, for example, increasing its stock value (Goldman et al, 2009), and vi) a lower cost of equity capital (Boubakri et al, 2012). On the other hand, some studies find negative impacts of being politically connected firms such as i) lower quality of accounting information (e.g.…”

Section: Introductionmentioning

confidence: 99%

Political connections, bank deposits, and formal deposit insurance

Nys

Tarazi

Trinugroho

2015

Journal of Financial Stability

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This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector. Political connections, bank deposits, and formal deposit insurance:Evidence from an emerging economy Abstract This paper investigates the impact of banks' political connections on their ability to collect deposits under two different deposit insurance regimes (blanket guarantee and limited guarantee). We estimate a simultaneous equations model of supply and demand for funds using quarterly data for Indonesian banks from 2002 to 2008. We find that, regardless of their type (state-owned or private entities), politically connected banks are able to attract deposits more easily than their non-connected counterparts. We also show that this effect is more pronounced after the implementation of formal deposit insurance with limited coverage. Our findings have various policy implications. Formal deposit insurance might have improved market discipline, as highlighted by earlier studies, but it has also exacerbated the issue of political connections in the banking sector.JEL Classification: G28, D72

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Do Politically Connected Boards Affect Firm Value?

Cited by 1,058 publications

References 22 publications

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs

Moonlighting Politicians: A Survey and Research Agenda

Political connections, bank deposits, and formal deposit insurance

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