Political appointees and firms’ long-term capital market performance: Evidence from Central European countries

Abstract

We investigate whether politicians’ appointments to corporate boards affect firms’ long-term market performance. We use two approaches to detect long-run anomalies and k-medoids clustering to classify politicians in a large dataset of listed Central European companies. We find that the long-term effects of politicians’ nominations generally do not differ from zero for the entire sample. However, when we simultaneously account for the ownership structure of firms and the traits of politicians joining boards, we identify two types of political appointees that destroy value in the long run. These politicians share some key features: their professional qualifications, network connectedness, and political power are ambiguous. Consequently, it is difficult for investors to assess the value of these politicians in companies in the first place.