Abstract
Many studies investigate collusion between political connections and firm performance, but Korean research on this topic is not very diverse. This study, based on financial data of listed Korean companies spanning the period from the 15th to the 19th Korean governments, analyzes whether political connections between governments and enterprises have a positive, negative, or no correlation with firm performance. The results show that the average return on assets for politically connected firms in the sample tends to be 10% higher than the corresponding value for sample firms that are not politically connected. Since existing studies measure political connections in a fragmented way, this study offers necessary implications for exploring the numerous structural problems of and solutions to the chronic issues currently faced by the Korean economy, as it investigates the economic policies from 1998 to 2018 and their influences on firm performance through the analysis of longer-term data.
Highlights
Political connections imply that politics and the economy are closely related or that political and economic circles are deeply connected for their own benefits
We provided descriptive statistics for the number of observations and the mean, standard deviation, minimum, and maximum values of the main variables
The average profitability of these companies was 10.4 percent based on the return on equity (ROE) and 5.1 percent based on the return on assets (ROA)
Summary
Political connections imply that politics and the economy are closely related or that political and economic circles are deeply connected for their own benefits. When the basic principle of democratic politics is that laws and institutions are handled in the administrative arena, judicial and legislative affairs cannot be separated from the political process, and this theory fails to acknowledge the power of democracy and politics, which regulate and reorganize markets and economies to serve community interests. Under this theory, it is natural that neo-liberalistic prescriptions, such as deregulation, privatization, and public sector downsizing, which have negative effects, are negative solutions to the link between business and politics. This phenomenon is observed in Korea and in many other countries in economic transition, and it has attracted the attention of various researchers worldwide [1,2,3,4]
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