Do strong corporate governance firms still require political connection, and vice versa?

A Recent Literature Review on Corporate Political Connections

“…Consistent with previous studies, it also revealed by Shen et al (2015) that political connections are more prevalent in poor governance firms. Some papers look at the interaction between ownership structure (or type) and political connections (Chan et al, 2012;Al-Hadi et al, 2016).…”

Board Characteristics, Political Connections, and Corporate Cash Holdings: The Role of Firm Size and Political Regime

“…As Good corporate governance can benefit firms by giving favorable benefits (Shen et al, 2015;Yeh et al, 2013) and hence hold less cash (Al-Najjar, 2014;Chen, 2008). On the other hand, politically connected firms may exhibit the same preferential treatments (Khwaja & Mian, 2005;Claessens et al, 2008;Shen et al, 2015) and hold less cash. Accordingly, political connections may act as a complement for good corporate governance in terms of corporate cash holding.…”

“…Similarly, prior literature also links corporate cash holding with firm's political connections and indicates that political connections can be used as a source for firms' value. Moreover, political connections can shape corporate financial policy by reducing precautionary motives of cash (Hill et al, 2014) and benefit firms by giving easy access to external finance (Khwaja & Mian, 2005;Claessens et al, 2008;Shen et al, 2015). Under the agency cost view, politically connected firms hold more cash as compared to their non-connected peers (Boubakri et al, 2013).…”

“…Secondly, recent literature suggests that despite corporate governance, political connections can be used by firms as a source for creation of value, because political connections can provide favorable outcomes (Shen, Lin, & Wang, 2015), and can shape corporate financial policy by reducing precautionary motives of cash (Hill, Fuller, Kelly, & Washam, 2014). Accordingly, political connections may act as a complement for good corporate governance in terms of corporate cash holding.…”

“…Yeh, Shu, and Chiu (2013) also argued that in weak corporate governance, political connections can be used as a substitute for obtaining better firm performance. Due to these inclusive results of political connections (Jackowicz, Kozłowski, & Mielcarz, 2014), its effect on corporate governance (Ding, Jia, Wu, & Zhang, 2014), and the joint effect of political connections and corporate governance are rarely being studied (Shen et al, 2015). Also, as reported by (Ding et al, 2014, p. 2), "most prior studies of political connections have left the effects of these connections on corporate governance unexamined".…”