Do types of political connection affect firm performance differently?

Abstract

This study investigates how four types of politically connected firms (PCON); namely, government-linked companies, board of directors, businessman, and family members, affect firm performance. Although anecdotal accounts that commonly professed a positive relationship between political connection and firm performance abound, we found that this is not true for every type of political connection. The results of this study showed that only PCON with a more stable connection (government-linked companies and board of directors) exhibit a positive relationship with firm performance and that such a relationship does not exist in PCON with a connection that is perceived as less stable (businessman and family members). The results of this study show the importance of distinguishing between the different types of connection as not all PCON bring value to a firm. In this study, we use an updated dataset comprising 493 PCON and non-PCON from 2002 to 2016. The evidence is from Malaysia, a country characterized by relationship-capitalism.