Political Connections, Business Groups, and Firm Value in Indonesia

The effect of board diversity, political connections and firm value of listed financial service firms in Nigeria is investigated in this study. Firm value, proxied by Tobin's q and computed as the ratio of the firm's market value of equity to the book value of total assets, is the study's explained variable, while board gender diversity, board nationality, board ethnic diversity, and political connections are the study's explanatory variables. The study’s population consists of fifty-one (51) listed financial service firms on the Nigerian Stock Exchange as at 31st December 2020. Thirty-five (35) of these firms made up the sample size for a period of nine years (2012-2020). Data was gathered from the annual reports of the sampled companies and analyzed using the feasible generalized least square regression (FGLS) approach. According to the study, board gender diversity, board nationality, and board ethnic diversity have a positive significant effect on the firm value of listed financial service firms in Nigeria, whereas political connections had a positive but minor effect. According to the findings, the boards of directors of listed financial service organizations in Nigeria should ensure that females are considered for directorship seats on the boards in order to increase their value, as suggested by the resource dependency theory. Also, the board should be made up of foreign directors in order to lure foreign investors to the firm and enhance its value. In addition, the boards of directors of listed financial services firms in Nigeria should consist of a mix of both northerners and southerners to improve firm value.

The separation of ownership from control produces a condition where the interests of owner and of ultimate manager may, and often do, diverge, and where many of the checks which formerly operated to limit the use of power disappear.... In creating these new relationships, the quasi-public corporation may fairly be said to work a revolution. It ... has divided ownership into nominal ownership and the power formerly joined to it. Thereby the corporation has changed the nature of profit-seeking enterprise.1

This study aims to examine the effect of abnormal related party transactions (RPTs) on firm value and to investigate political connections as a moderator of the causal relationship. Our sample is 450 Indonesian firms listed at the Indonesia Stock Exchange during the period of 2014–2017 with a total of 1,724 firm-year observations. Based on the panel data regression test, our results demonstrate that abnormal RPTs, especially account receivables-related RPTs and account payables-related RPTs, decrease firm value. Further, the results empirically show that political connections negatively affect firm value. Political connections strengthen the effects of abnormal non-account receivable RPT assets and abnormal non-account payable RPT liabilities on firm value. Our findings imply that agency theory explains the impacts of political connections of Indonesian firms better than resource dependence theory.

PurposeThe impact of founder CEOs on firm value continues to be debated in the finance literature. While earlier studies suggest that founding family ownership and founding CEO structure create less value than public ownership, later studies provide contradicting evidence. This study examines how founder CEOs affect firm value in the business group context while controlling for firm-specific variables and various CEO characteristics.Design/methodology/approachThe authors use a sample of publicly listed Indian firms from 2010 to 2015 with 997 firm-year data observations. While 306 of these are in business groups, the remaining 691 are in a nonbusiness group. The authors also divide the sample into various sector subgroups, including materials (170), industrials (198), consumer (422) and others (198). They use two different models, including the fixed effect model (FEM) and pooled generalized method of moments (GMM) model to run regressions.FindingsThe authors find that firms with founder CEOs have lower firm value than those with nonfounder CEOs. These results show the importance of the role of founder CEOs in the Indian business groups. The authors further find a positive relationship between founder CEO and business group interaction variable, showing that an increase in founder CEO (or business group) increases the significance effect of business group (founder CEO) on firm performance. After separating the sample business and nonbusiness groups, the relationship between founder CEOs and firm value in both groups remains negative. Using various firm-specific control variables, the authors find that highly leveraged and smaller firms experience lower Tobin's Q. In contrast, firms with more investment in research and development perform better. Among CEO characteristics, the authors find that firms with highly educated CEOs do not perform well, while firms with older CEOs do better. Finally, they find that CEO tenure and duality are associated with lower firm performance.Originality/valueThis study adds value by providing evidence on the founder CEOs and firm performance in business groups from a fast-developing emerging market.

ObjetivoEste estudio tiene como objetivo investigar la relación entre la afiliación a grupos empresariales y las emisiones de CO2 en Chile, proporcionando información sobre las externalidades de contaminación asociadas con las estructuras de grupos empresariales y sus implicaciones para el desempeño ambiental de las empresas.Diseño/Metodología/AproximaciónSe utilizó una muestra recolectada de manera manual de instalaciones industriales y subsidiarias de empresas listadas en Chile para analizar las emisiones de CO2 de empresas afiliadas a grupos empresariales en comparación con empresas independientes. Se emplearon análisis de regresión de efectos fijos y modelos de emparejamiento por puntaje de propensión para examinar las diferencias en los niveles de emisiones.HallazgosLos resultados sugieren que las empresas afiliadas a grupos empresariales tienen mayores emisiones de CO2 en comparación con empresas independientes similares. Esto sugiere que las estructuras de grupos empresariales pueden debilitar las presiones para la reducción de emisiones y el mantenimiento de la legitimidad pública entre las empresas afiliadas.OriginalidadEste estudio contribuye a la literatura sobre gobierno corporativo, riesgos climáticos y externalidades de contaminación al proporcionar evidencia empírica sobre la relación entre la afiliación a grupos empresariales y las emisiones de CO2. Destaca la importancia de considerar la influencia de las estructuras corporativas en el rendimiento ambiental, especialmente en el contexto de las economías de mercados emergentes.Limitaciones/Implicaciones de la InvestigaciónLos hallazgos de este estudio están sujetos a ciertas limitaciones, como el uso de un conjunto de datos específico de Chile y la incapacidad para explorar ciertos factores debido a restricciones de datos. Por ejemplo, no pudimos examinar la influencia de las características de los ejecutivos de las empresas en los niveles de contaminación. Investigaciones futuras deberían abordar estas limitaciones y ampliar el análisis a otros países de mercados emergentes para investigar más a fondo el impacto de regulaciones ambientales laxas o ineficaces en los resultados de contaminación.Implicaciones PrácticasLos hallazgos de la investigación tienen implicaciones prácticas para inversores y responsables políticos. Los inversores interesados en inversiones ambientalmente sostenibles deben tener en cuenta los niveles más altos de contaminación asociados con empresas afiliadas a grupos empresariales. Los responsables políticos pueden utilizar estos hallazgos para diseñar regulaciones más efectivas e incentivos para fomentar los esfuerzos de reducción de emisiones dentro de las estructuras de grupos empresariales.Implicaciones SocialesLos resultados del estudio enfatizan la necesidad de comprender de manera integral las implicaciones ambientales de la afiliación a grupos empresariales. Al reconocer el potencial de mayores emisiones en las estructuras de grupos empresariales, los interesados pueden abogar por prácticas sostenibles, fomentar la transparencia y promover una gestión ambiental responsable dentro de las entidades corporativas.

The first aim of this paper is to examine the relationship between incentive management, corporate social responsibility, political connections, and firm value in the mining industry using the agency theory. The second aim is to examine corporate governance's moderating role in the relationship between incentive management, corporate social responsibility, political connections, and firm value. This research uses Moderated Regression Analysis (MRA) to realize the objectives. This study finds a relationship between incentive management, corporate social responsibility, political connections, and firm value. It also finds that corporate governance moderates the relationship between incentive management, corporate social responsibility, political connections, and firm value. Corporate governance plays a role in helping to reduce agency problems and strengthen corporate supervision. The results of this study provide theoretical contributions to the literature on the development of corporate governance and capital markets, especially in investment decision-making. The findings of this study can be used as a consideration for policies related to regulations in the management of incentives management, corporate social responsibility, corporate governance, and corporate value.

PurposeThis paper aims to examine the moderating effects of board size on the relationship between dividends and firm value in Malaysian settings. The theoretical foundations of this research were the integration between agency and resources dependency theories.Design/methodology/approachPanel data are extracted from DataStream and the annual report for the period of 2012 to 2021, and pooled OLS, random effects, and fixed effects analyses were employed to examine the relationship. Breusch–Pagan Lagrange multiplier (LM) test and the Hausman test used to determine the most appropriate between these three analyses (OLS, random effects, and fixed effects). The results are valid even after calculating the robust standard error to mitigate the potential heteroskedasticity and serial correlation.FindingsThe empirical results show that board size positively moderates the relationship between dividends and firm value in all the models tested. The results indicate that a larger board of size can minimize the agency problem (agency theory) because a larger board size can more effectively monitor and control management's opportunistic behavior due to more set of skilled and talented individuals included in the boardroom (resources dependency theory). Additionally, effective monitoring can also lead to the increase in dividend payout to maintain a good reputation among investors and simultaneously increase firm value.Practical implicationThis study contributes to helping the regulators and industry players in Malaysia to improve existing guidelines for determining dividend and board size to increase firm value. The findings may also provide inputs to the policymakers in recommending the optimum dividend and board size that resulting an increase in valuation.Originality/valueBy incorporating agency and resources dependency theory, authors investigate the moderating effect of board size on dividend and firm value relationships in Malaysian markets.

The concept of parenting was originally proposed by Campbell et al (1995) in the context of conglomerates in developed economies. In contrast to the divisional structure of conglomerates in developed countries, business groups as found in most emerging consist of a network of affiliated yet independent firms. This difference in the structure of multi-business firms in developed and emerging markets solicits a revisiting the concept of parenting as originally proposed by Campbell et al. (1995). Does ‘parenting advantage’ exist in emerging markets? If so, what are the sources of ‘parenting advantage’? Given the multi-firm, multi-business group affiliated setup how does ‘parenting’ differ in emerging markets when compared to conglomerates of developed economies? How does the business group structure and associated managerial practices impact ‘parenting advantage’ of firms affiliated to a business group in emerging market? This paper examines some of these critical yet unanswered questions. The contribution made in this work is threefold… One, we redefine the concept of ‘parenting’ as relevant to business group structure found in emerging markets like India. Two, we articulate the drivers of parenting value for affiliate firms bound in a business group structure. Three, the paper discusses the nuances of parenting and its advantages in an emerging market, in contrast to its conceptualization in developed economies. Finally, extending the parenting literature to a wider context of an emerging market is an important outcome of this work.

This study investigates the effect of board diversity, political connections, and firm value on the listed financial services firms in Nigeria. Firm value, proxied by Tobin's q and computed as the ratio of the firm's market value of equity to its book value of total assets, is the study's explained variable, while board gender diversity, board nationality, board ethnic diversity, and political connections are the study's explanatory variables. The study’s population consists of 51 listed financial service firms on the Nigerian Stock Exchange as of December 31, 2020. Thirty-five (35) of these firms made up the sample size for a period of nine years (2012–2020). Data was gathered from the annual reports of the sampled companies and analyzed using the feasible generalized least squares regression (FGLS) approach. According to the study, board gender diversity, board nationality, and board ethnic diversity have a positive and significant effect on the firm value of listed financial service firms in Nigeria, whereas political connections have a positive but insignificant effect. According to the findings, the boards of directors of listed financial service organizations in Nigeria should ensure that females are considered for directorship seats on the boards, as suggested by the resource dependency theory.Also, the board should be made up of foreign directors in order to lure foreign investors to the firm and enhance its value. In addition, the boards of directors of listed financial services firms in Nigeria should consist of a mix of both northerners and southerners to leverage national spreads and improve firm value.

This study aims at disentangling the decision of interlocking directors along the hierarchy of business groups. We consider boards as information-processing groups and argue that, following agency theory and resource dependence theory, monitoring and advising functions are better achieved through interlocks. Analyzing an international sample of 847,085 boards’ positions, our model empirically checks that two contingent factors -geographic and institutional distance between headquarters and affiliates in business groups- and industrial diversification strategy, as barriers of information, hinder the decision of interlocking directors. Furthermore, we find that there are characteristics of business groups -such as ownership links and the position of affiliates- that influence this decision. Our contribution is threefold. First, our research contributes to the alignment of corporate governance and business groups’ literature, by studying the composition of their boards. Second, we contribute to the literature of information processing barriers through a cost-benefit analysis of the interlocking decisions inside business groups. Third, we offer a new methodology on the empirical identification of business groups.

ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

This study extends the literature on tax aggressiveness (TA) from agency perspectives in the rarely discussed case of group firms. More specifically, the study investigates the relationship between firms TA, tunnelling and value of firm. Moreover, the study also investigates the impact of the moderating role of corporate governance (CG) in counterfeiting the conflicts of interests in group firms. For this purpose, sample data of 160 non-financial Pakistani firms belonging to groups for the period from 2009 to 2018 is analyzed through two Stages Least Square Regression (2SLS) models. The findings reveal that tunneling, group ownership and managerial ownership show direct association with TA. While CG agents, board and audit committee independence and external audit quality exhibits an indirect relationship with TA. Moreover, the tunneling-related TA has a negative effect on the firm value. However, the estimated interaction effects show that CG mitigates this negative relationship between the tunneling-related TA and firm value. Thus, good CG ameliorates the expropriations by the controlling shareholders and TA becomes a value enhancing activity in business groups. Keywords: Tax Aggressiveness, Firm Value, Business Groups, Corporate Governance, External Audit Quality

PurposeThe purpose of this paper is to use difference-in-difference method (DID) to study the influences of independent directors’ political connection on firm value.Design/methodology/approachFile No. 18 by the Organization Department of the Communist Party of China Central Committee requires that the leading cadres in party and government offices are not allowed to act as independent directors; this restriction applies to retired officials as well. As a result, many listed companies lose the political connections of officers as independent directors. This paper takes it as an exogenous shock to evaluate the influence of the political connection of independent directors on firm value, effectively alleviating the endogeneity problem existing in previous studies.FindingsThe research finds the following: under the policy of compelled resignation, the loss of political connection of independent directors has a prominent negative impact on firm value; and compared to state-owned enterprises, the firm value of private enterprises receives a greater negative impact. However, the political advantage of state-owned enterprises is not obviously influenced. In the regions with worse external market environments, due to a greater reliance on resources brought about by political connection, the policy has a much greater influence on their listed companies.Research limitations/implicationsThe study faces several limitations, each of which represents a potential research direction. First, our analysis is based on the policy effects on the firm’s current Tobin’s Q and finds a negative effect of losing political connections. However, the long-term effects are still unclear, as some studies find a negative effect of political connections. Second, the paper focuses on one channel in which political connections may affect firm value. Other channels, such as subsidies and loans from state-owned banks, which need more granular data, should be explored in the future.Practical implicationsThe use of DID model can better objectively evaluate the implementation effects of ban policies and alleviate endogenous problems, which is also enlightening for further perfection of the system of independent directors in the A-share market.Social implicationsIt enriches existing researches of the value of independent directors from the perspective of political connection, which is conducive to understanding the influence and channel on the firm value after the loss of political connection and the value of independent directors in the corporate governance in a more comprehensive and accurate manner.Originality/valueThis paper extends the relevant research on the value of the political connection of independent directors from the perspective of political connection and enlightens the evaluation of the effect of ban policies.

This paper argues that the structure of corporate ownership varies systematically in ways that are consistent with value maximization. Among the variables that are empirically significant in explaining the variation in ownership structure for 511 U.S. corporations are firm size, instability of profit rate, whether or not the firm is a regulated utility or financial institution, and whether or not the firm is in the mass media or sports industry. Doubt is cast on the Berle-Means thesis, as no significant relationship is found between ownership concentration and accounting profit rates for this set of firms.

Purpose: Extant studies have investigated the determinants of firm performance; however, limited studies have focused on CEOs' political connections, especially in Nigeria, despite the postulation that the invisible hand of politics controls the economic sector. Our study fills the gap in the literature by examining the effect of the CEO's political connection on the financial performance of the Nigerian Deposit Money Banks. Design/ Approach/Methodology: The scope of this study is limited to the listed Nigerian Deposit Money Banks (DMBs) within the period 2011-2023. We employed a longitudinal research design by collecting 156 firm-year observations resulting from 12 listed DMBs and estimated using the ordinary least square method. Findings: Our study shows that CEO political connection is positive and significantly related to firm performance, supporting the assertion that CEO political connection improves the firm's financial performance, which aligns with the resource dependence theory. Conclusion: the study concluded banks CEO with political connection have a higher performance. Research Limitations/Implications: The study is limited to the Deposit Money Banks (DMBs); hence, we recommend that future studies focus on other sectors of the Nigerian economy. Our study contributed to limited empirical evidence on political connection and firm performance and shows that the CEO's political connection revolves around resource dependence and networking theories.