Do Political Connections Enhance or Decrease Firm Perfomance? Emerging Market Evidence
Supatmi Supatmi1*, Sutrisno Sutrisno2, Erwin Saraswati2, and Bambang Purnomosidhi2
1 Satya Wacana Christian University and Doctoral student at Brawijaya University
2 Brawijaya University
Abstract
This study seeks to examine the effect of political connections on firm performance and to investigate leverage as a moderator of the causal relationship. Indonesia as one of the emerging countries provides an appropriate research setting for this research. Our sample is 470 Indonesian firms listed at the Indonesian Stock Exchange for the years 2014–2017 with 1.884 firm-years observations. Based on the panel data regression test, our results demonstrate that political connections decrease firms- market and accounting performance. Further, the results empirically show that leverage strengthen the impact of political connections on firm performance.
Keywords: political connection, leverage, firm performance, agency theory, Indonesia
Topic: Economics, Finance, Banking, and Accounting