The Effect of Political Connections on the Firm Performance in a Newly Democratised Country

Bencheikh, Fayrouz; Taktak, Neila Boulila

doi:10.1515/mjss-2017-0004

Cited by 16 publications

(33 citation statements)

References 18 publications

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“…We hardly find similar studies in other country, which have different characteristics from China. As far as we know there are only research from Saeed et al (2016) in developing country using sample from Pakistan, and research taken from democratic country of Tunisia by Bencheikh and Taktak (2017), which mainly talked about political connections and firm performance. So we address this research gap to examine the relationship between political connections and overinvestment in a developing, democratic and multi-party country.…”

Section: Introductionmentioning

confidence: 99%

Political connections, overinvestment and governance mechanism in Indonesia

Nasih

Al-Cholili

Harymawan

et al. 2020

Cogent Economics & Finance

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The purpose of this study is to investigate the association between political connections and overinvestment in Indonesia as a democratic, multi-party and developing country. This study uses sample of 1,044 and 543 firm-year observations from listed firms on the Indonesian Stock Exchange from 2012 to 2017. A two-stage model is used to address overinvestment, which used two different measurements, then continued by ordinary least square regression to establish the main analysis result. This study finds that political connection is negatively associated with overinvestment in Indonesia. We also find that this negative association is increasing due to the existence of governance mechanism from both external and internal parties of the firm. Our results indicate that the significant negative associations between political connections with overinvestment, which later is strengthen by governance mechanism might be caused by several differences in institutional setting and/or political connections benefits between the previous research in China and with the place where this research is taken. This paper could give insights in decision-making for stakeholders to anticipate certain harmful ABOUT THE AUTHORS Mohammad Nasih is a Professor and also a rector of Universitas Airlangga, Indonesia. His current research focuses include corporate governance issues, political and military connections in business, and financial reporting.

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Section: Introductionmentioning

confidence: 99%

Political connections, overinvestment and governance mechanism in Indonesia

Nasih

Al-Cholili

Harymawan

et al. 2020

Cogent Economics & Finance

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“…Additionally, under stakeholder theory, there are reciprocal benefits to be connected with the politicians, the connected firms are expected to gain benefits to maximize stakeholders' wealth, at the same time they bear the costs according to contributing to politicians' campaigns and the achievement of their electoral programs (Cooper et al, 2010;Tahoun, 2014). Accordingly, considering politicians rent extractions, improvement in the firm value will happen if the marginal benefits of the PCs outweigh their marginal costs (Shleifer and Vishny, 1994;Faccio, 2006;Bencheikh and Taktak, 2017). For example, Bertrand et al (2018) found that politically connected firms in France are less profitable compared to unconnected firms, especially in politically contested areas and in election years.…”

Section: Research Hypothesis Developmentmentioning

confidence: 99%

“…Specifically, some unobserved factors of profitability and firm's market value may also explain PCs, leading OLS estimates to be inconsistent and biased. Depending on the 2SLS method, three instrumental variables as well as the other independent variables regressing in the first stage of the 2SLS method to estimate the different types of PCs, these variables are, firm age, which measured as a natural logarithm of firm age (Boubakri et al, 2012b;Bencheikh and Taktak, 2017), lagged of market capitalization (Lag MC) which is calculated as multiplying the number of shares outstanding by the share price at year-end (Faccio et al, 2006;Goldman et al, 2009;Maaloul et al, 2018) and lagged return on assets (Lag ROA) (Maaloul et al, 2018), then the fitted values for different PCs types are used in the second stage of OLS regression. Results show similar results to the main results of the OLS regression (results reported in Table 9).…”

Section: Endogeneity Testmentioning

confidence: 99%

The effect of political connections on firm performance: evidence from Egypt

Eissa

Eliwa

2021

ARA

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PurposeThis paper examines the effect of political connections (PCs) on firms' profitability and market value in the Egyptian market after the uprising of 2013.Design/methodology/approachAn empirical study is conducted based on 284 firm-year observations for non-financial listed firms on the EGX100 during the period of 2014–2017. To test the study’s hypothesis, two independent sample t-test, Pearson correlation analysis and ordinary least square (OLS) regressions are conducted.FindingsThe results suggest that PCs are common across all industries in Egypt, the PCs through top officers do not improve firm's profitability; however, it has a positive effect on firms' market value. Further, PCs through business owners improve neither profitability nor the market value. Finally, the results suggest that PCs through government ownership have a positive effect on both firms' profitability and market value.Practical implicationsThe study’s finding encourages policymakers and regulators in emerging markets, e.g. Egypt, to develop stricter laws, policies and regulatory initiatives to restrain the potential conflict of interest in the politically connected firms.Originality/valueTo the best of the authors' knowledge, this study is one of the first to examine the relationship between PCs and both firms’ profitability and market value in Egypt.

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“…According to Huang and Zhao (2016), political connections can be a positive correlation against the CSR performance of private companies listed on the Shanghai Stock Exchange for the period 2008-2014. In addition, political connections are considered capable of giving advantages to improve the company's performance (Bencheikh, et al, 2017) and also increase the value of the company (Faccio, 2006). Therefore, the second hypothesis in this research is as follows:…”

Section: Entrepreneurship and Sustainability Issuesmentioning

confidence: 99%

Military experienced board and corporate social responsibility disclosure: an empirical evidence from Indonesia

Nasih¹,

Harymawan²,

Putra³

et al. 2019

JESI

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This study examines the impact of military connection and politically connection on Corporate Social Responsibility Disclosure. Using 110 firm year observations of Indonesia listed firms, we predict that the presence of military or politically connection in firm's board will increase the Corporate Social Responsibility Disclosure level on its Sustainability Report. We found that military connected boards increase the Corporate Social Responsibility Disclosure while politically connection does not show any correlation. Our further analysis on specific type of each connection shows that military career position, army military origin, marine military origin, People's Consultative Assembly politically affiliation and House of Representation politically affiliation increase the level of Corporate Social Responsibility Disclosure level. Our result is robust due to various research model and Heckman's two stage regression.

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The Effect of Political Connections on the Firm Performance in a Newly Democratised Country

Abstract: The study of

Cited by 16 publications

References 18 publications

Political connections, overinvestment and governance mechanism in Indonesia

Political connections, overinvestment and governance mechanism in Indonesia

The effect of political connections on firm performance: evidence from Egypt

Military experienced board and corporate social responsibility disclosure: an empirical evidence from Indonesia

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