Political connections, related party transactions and firm performance: evidence from Tunisian context

Abstract

PurposeThe purpose of this paper is to examine the effect of the presence of political connections on firm performance through related party transactions in Tunisia, a country where that is characterized by the Jasmin revolution in 2011.Design/methodology/approachThe study uses a sample of nonfinancial firms between 2008 and 2014 listed on the Tunis Stock Exchange and uses generalized least squares on panel data.FindingsFirst, the political connection and related parties' transaction enhances firm's market performance. Second, the study reveals that political connection moderates the relationship between the related party transactions and firm performance only in the period after revolution. Indeed, politicians seem to have used related party transactions to expropriate firms in a period of political instability. Finally, we show that politicians are more attracted by firms with higher market performance and with higher number of related parties' transactions.Practical implicationsThe empirical findings contribute to the current debate on the benefits and costs of political connections in emerging economies. It shows that political connections enhance market valuation of firms. However, political connection costs appear during political instability period.Originality/valueThis study addresses the interaction between related party transactions, political connections and firm performance. It is the first study to test if the related party transactions are used as a tool by politicians to expropriate firms.

Corporate governance and Indonesian state-owned companies’ performance: Agency and institutional perspectives

“…The Board of Directors' political connections do not significantly moderate this relationship. The lack of interference by politicians in company operations is highlighted, supporting Almarayeh, et al [62] and Cheikh and Loukil [64]. However, the Board of Commissioners' political connections weaken it, supporting the managerial diversion theory.…”

“…In addition, political connection is also tested as a moderating variable in the relationship between related party transactions and firm performance. During times of political instability, politicians have been found to utilize related party transactions, resulting in the expropriation of some firms [64].…”

Moderating Role of Audit Quality and Firm Size on Pretax Profit Margin and Related Party Transactions: Evidence From Indonesia

“…Government-created related party transactions (RPTs) or transfer pricing rules are included in the rules tax system to guarantee that businesses comply with each country's tax mechanism and regulatory requirements (Minh Ha et al, 2022;Widadi et al, 2022). Considering the numerous adverse effects of RPTs, tax authorities in each country have now become increasingly strict in their monitoring of RPTs through the imposition of sanctions, the addition of new records, the addendum of specifics, the training of audit personnel, inspections, and specialist officers (Angelica et al, 2021;Ben Cheikh & Loukil, 2022). It is expected that RPTs by various parties in Indonesia influence the tax rate such that the Indonesian tax rate does not produce the maximum effects (Santosa et al, 2021).…”