Corporate governments: Government connections of public oil and gas companies

Abstract

It is well known that governments have direct control over much of the energy sector through National Oil Companies (NOCs). Much less understood are the determinants and consequences of government connections of their stock exchange listed counterparts, Public Oil & Gas Companies (POCs). This paper focuses on an important mechanism through which POCs and governments can influence one another: the presence of current and former government employees among POC directors. Specifically, we expect that current government officials serving on POC boards are more likely than other board members to be a channel through which governments influence firms. Former government officials on POC boards, on the other hand, are more likely than other board members to lobby their governments on the companies’ behalf. We collect data on 112 large POCs from 35 countries, and on country and size-matched control firms outside the oil & gas sector. The empirical results provide partial support for our hypotheses. We find that the importance of the energy sector in a country’s economy does not impact the government connectedness of its POC boards. Country-level corruption measures, on the other hand, are positively related to the prevalence of current and former government officials on POC boards’ – and in the case of current officials, significantly more so than for non-energy firms. Lastly, there is some indication that having former government officials on a POC board contributes to the firm’s profitability.