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POLITICALLY CONNECTED FIRMS: A REVIEW

Year 2018, Volume: 14 Issue: 4, 1081 - 1101, 01.09.2018
https://doi.org/10.17130/ijmeb.2018445671

Abstract

The issue of politically connected firms has recently become one of the hot topics in management and financial studies. The aim of this review is to present the theories used in this topic and assesses the empirical studies. To do so first, we present the definition of politically connected firms. Subsequently, the paper introduces the theoretical approaches, namely; the resource dependence theory and the theory of privatization that aim to explain the reasons of political connection. Furthermore, the paper reviews existing empirical studies discussing the impacts of political connection on several issues: namely, impact of political connection on firm performance, impact of political connection on accessing bank credit, impact of political connection on accessing preferential treatments and finally impact of political connection on employment

References

  • Aburime, T. U. (2009). Impact of political affiliation on bank profitability in Nigeria. African Journal of Accounting, Economics, Finance and Banking Research, 4(4), 61-75.
  • Adhikari, A., Derashid, C., & Zhang, H. (2006). Public policy, political connections, and effective tax rates: Longitudinal evidence from Malaysia. Journal of Accounting and Public Policy, 25(5), 574-595.
  • Asquer, R., & Calderodi, F. (2011). Family matters: Testing the effect of political connections in Italy. Symposium: Democracy and its Development 2005-2011, UC Irvine, CA, Center for the Study of Democracy.
  • Baum, C. F., Caglayan, M., Schafer, D., & Talavera, O. (2008). Political patronage in Ukrainian banking. Economics of Transition, 16(3), 537-557.
  • Bertrand, M., Kramarz, F., Schoar, A., & Thesmar, D. (2007). Politicians, firms and the political business cycle: Evidence from France. Unpublished working paper, University of Chicago.
  • Blau, B. M., Brough, T. J., & Thomas, D. W. (2013). Corporate lobbying, political connections, and the bailout of banks. Journal of Banking & Finance, 37(8), 3007-3017.
  • Bortolotti, B., & Faccio, M. (2009). Government control of privatized firms. Review of Financial Studies, 22(8), 2907-2939.
  • Boubakri, N., & Cosset, J. C. (1998). The financial and operating performance of newly privatized firms: Evidence from developing countries. The Journal of Finance, 53(3), 1081-1110.
  • Boubakri, N., Cosset, J. C., & Saffar, W. (2008). Political connections of newly privatized firms. Journal of Corporate Finance, 14(5), 654-673.
  • Boubakri, N., Cosset, J. C., & Saffar, W. (2012a). The impact of political connections on firms’ operating performance and financing decisions. Journal of Financial Research, 35(3), 397-423.
  • Boubakri, N., Guedhami, O., Mishra, D., & Saffar, W. (2012b). Political connections and the cost of equity capital. Journal of Corporate Finance, 18(3), 541-559.
  • Boycko, M., Shleifer, A., & Vishny, R. W. (1996). A theory of privatisation. The Economic Journal, 106(435), 309-319.
  • Boyd, B. (1990). Corporate linkages and organizational environment: A test of the resource dependence model. Strategic Management Journal, 11(6), 419-430.
  • Braggion, F., & Moore, L. (2013). The economic benefits of political connections in late Victorian Britain. The Journal of Economic History, 73(01), 142-176.
  • Bunkanwanicha, P., & Wiwattanakantang, Y. (2009). Big business owners in politics. Review of Financial Studies, 22(6), 2133-2168.
  • Carretta, A., Farina, V., Gon, A., & Parisi, A. (2012). Politicians ‘on board’: Do political connections affect banking activities in Italy? European Management Review, 9(2), 75- 83.
  • Chaney, P. K., Faccio, M., & Parsley, D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1), 58-76.
  • Charumilind, C., Kali, R., & Wiwattanakantang, Y. (2006). Connected lending: Thailand before the financial crisis. The Journal of Business, 79(1), 181-218.
  • Chen, Y. S., Shen, C. H., & Lin, C. Y. (2014). The benefits of political connection: Evidence from individual bank-loan contracts. Journal of Financial Services Research, 45(3), 287-305.
  • Claessens, S., Feijen, E., & Laeven, L. (2008). Political connections and preferential access to finance: The role of campaign contributions. Journal of Financial Economics, 88(3), 554-580.
  • Ding, S., Jia, C., Wu, Z., & Zhang, X. (2014). Executive political connections and firm performance: Comparative evidence from privately-controlled and state-owned enterprises. International Review of Financial Analysis, 36, 153-167.
  • Disli, M., Schoors, K., & Meir, J. (2013). Political connections and depositor discipline. Journal of Financial Stability, 9(4), 804-819.
  • Do, Q. A., Lee, Y. T., & Nguyen, B. D., (2013). Political connections and firm value: Evidence from the regression discontinuity design of close gubernatorial elections. Working Paper, University of Cambridge.
  • Duchin, R., & Sosyura, D. (2012). The politics of government investment. Journal of Financial Economics, 106(1), 24-48.
  • Faccio, M., & Lang, L. H. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65(3), 365-395.
  • Faccio, M. (2006). Politically connected firms. The American Economic Review, 96(1), 369- 386.
  • Faccio, M. (2010). Differences between politically connected and non-connected firms: A cross-country analysis. Financial Management, 39(3), 905-928.
  • Faccio, M., & Hsu, H. C. (2017). Politically connected private equity and employment. Journal of Finance 72(2), 539-574.
  • Faccio, M., Masulis, R. W., & McConnell, J. (2006). Political connections and corporate bailouts. The Journal of Finance, 61(6), 2597-2635.
  • Faccio, M., & Parsley, D. C. (2009). Sudden deaths: Taking stock of political connections. Journal of Financial Quantitative Analysis, 44(3) 683-718.
  • Fan, J. P., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2), 330-357.
  • Ferguson, T., & Voth, H.-J. (2008). Betting on Hitler-the value of political connections in nazi Germany. Quarterly Journal of Economics, 123(1), 101-137.
  • Firth, M., Lin, C., Liu, P., & Wong, S. M. (2009). Inside the black box: Bank credit allocation in China’s private sector. Journal of Banking & Finance, 33(6), 1144-1155.
  • Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4) 1095-1102.
  • Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? Review of Financial Studies, 22(6), 2331-2360.
  • Goldman, E., Rocholl, J., & So, J. (2013). Politically connected boards of directors and the allocation of procurement contracts. Review of Finance, 17(5), 1617-1648.
  • Hasan, I., Jackowicz, K., Kowalewski, O., & Kozlowski, L. (2014). Politically connected firms in Poland and their access to bank financing. Working Paper.
  • Hersch, P., Kemme, D., & Netter, J. (1997). Access to bank loans in a transition economy: The case of Hungary. Journal of Comparative Economics, 24(1), 79-89.
  • Hillman, A.J., 2005. Politicians on the board of directors: Do connections affect the bottom line?. Journal of Management, 31(3), 464-481.
  • Houston, J. F., Jiang, L., Lin, C., & Ma, Y. (2014). Political connections and the cost of bank loans. Journal of Accounting Research, 52(1), 193-243.
  • Infante, L., & Piazza, M. (2014). Political connections and preferential lending at local level: Some evidence from the Italian credit market. Journal of Corporate Finance, 29, 246- 262.
  • Jackowicz, K., Kozlowski, L., & Mielcarz, P. (2014). Political connections and operational performance of non-financial firms: New evidence from Poland. Emerging Markets Review, 20, 109-135.
  • Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: Evidence from Malaysia. Journal of Financial Economics, 67(2), 351-382.
  • Kang, J. K., & Zhang, L. (2017). Do outside directors with government experience create value?. Financial Management, (Forthcoming)
  • Kim, C. F., & Zhang, L. (2015). Corporate political connections and tax aggressiveness. Contemporary Accounting Research, 33 (1), 78-114.
  • Li, H., Meng, L., Wang, Q., & Zhou, L. A. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283-299.
  • Malesky, E. J., & Taussig, M. (2009). Where is credit due? Legal institutions, connections, and the efficiency of bank lending in Vietnam. Journal of Law, Economics, and Organization, 25(2), 535-578.
  • Megginson, W. L., Nash, R. C., & Van Randenborgh, M. (1994). The financial and operating performance of newly privatized firms: An international empirical analysis. Journal of Finance, 49(2), 403-452.
  • Megginson, W. L., & Netter, J. M. (2001). From state to market: A survey of empirical studies on privatization. Journal of Economic Literature, 39(2), 321-389.
  • Menozzi, A., Urtiaga, M. G., & Vannoni, D. (2012). Board composition, political connections, and performance in state-owned enterprises. Industrial and Corporate Change, 21(3), 671-698.
  • Niessen, A., & Ruenzi, S. (2010). Political connectedness and firm performance: Evidence from Germany. German Economic Review, 11(4), 441-464.
  • Ozcan, G. B., & Gunduz, U. (2015) Political connectedness and business performance: Evidence from Turkish industry rankings. Business and Politics, 17(1), 41-73.
  • Perez, S. G., Sanchez, C. B., & Martín, D. J. S. (2014). Politically connected firms in Spain. BRQ Business Research Quarterly, 18(4), 1-16.
  • Pfeffer, Jefrey. & Gerald. R. Salancik, (1978). The external control of organizations: A resource dependence perspective. New York: Harper & Row.
  • Saeed, A., Belghitar, Y., & Clark, E. (2015). Do political connections affect firm performance? Evidence from a developing country. Emerging Markets Finance and Trade, 1-16
  • Saeed, A., Belghitar, Y., & Clark, E. (2014). Political connections and leverage: Firm level evidence from Pakistan. Managerial and Decision Economics, 36, 364-383.
  • Shleifer, A., & Vishny, V, R. (1994) Politician and firms. The Quarterly Journal of Economics, 109(4), 995-1025.
  • Wu, W., Wu, C., & Rui, O. M. (2010). Ownership and the value of political connections: Evidence from China. European Financial Management, 18(4), 695-729.
  • Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public Policy, 31(3), 277-300.
  • Yeh, Y. H., Shu, P. G., & Chiu, S. B. (2013). Political connections, corporate governance and preferential bank loans. Pacific-Basin Finance Journal, 21(1), 1079-1101.
  • You, J., & Du, G. (2012). Are political connections a blessing or a curse? Evidence from CEO turnover in China. Corporate Governance: An International Review, 20(2), 179-194.
  • Zhang, H., Li, L., Zhou, D., & Zhou, P. (2014). Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China. Renewable Energy, 63, 330-336.

POLİTİK BAĞLANTILI FİRMALAR: DEĞERLENDİRME

Year 2018, Volume: 14 Issue: 4, 1081 - 1101, 01.09.2018
https://doi.org/10.17130/ijmeb.2018445671

Abstract

Politik bağlantılı firmalar konusu son dönemlerde yönetim ve finans alanlarının en gözde çalışma konularından birisi haline geldi. Bu değerlendirmenin amacı, bu konuyla ilgili teorileri sunmak ve ampirik çalışmaları değerlendirmektir. Bu amaç doğrultusunda ilk olarak, politik bağlantılı firmanın tanımı yapılmıştır. Akabinde, politik bağlantının gerekçelerini açıklamaya yönelik olan teoriler; kaynak bağımlılığı teorisi ve özelleştirme teorisini ele almıştır. Sonrasında, makale politik bağlantıların çeşitli konular üzerine etkilerini şöyleki; politik bağlantının firma performansı üzerine etkisi, politik bağlantının banka kredilerine ulaşmada etkisi, politik bağlantının ayrıcalıklı uygulamalara ulaşmada etkisi ve son olarak politik bağlantının istihdama etkisi, var olan ampirik çalışmalar bağlamında tartışarak incelenmektedir

References

  • Aburime, T. U. (2009). Impact of political affiliation on bank profitability in Nigeria. African Journal of Accounting, Economics, Finance and Banking Research, 4(4), 61-75.
  • Adhikari, A., Derashid, C., & Zhang, H. (2006). Public policy, political connections, and effective tax rates: Longitudinal evidence from Malaysia. Journal of Accounting and Public Policy, 25(5), 574-595.
  • Asquer, R., & Calderodi, F. (2011). Family matters: Testing the effect of political connections in Italy. Symposium: Democracy and its Development 2005-2011, UC Irvine, CA, Center for the Study of Democracy.
  • Baum, C. F., Caglayan, M., Schafer, D., & Talavera, O. (2008). Political patronage in Ukrainian banking. Economics of Transition, 16(3), 537-557.
  • Bertrand, M., Kramarz, F., Schoar, A., & Thesmar, D. (2007). Politicians, firms and the political business cycle: Evidence from France. Unpublished working paper, University of Chicago.
  • Blau, B. M., Brough, T. J., & Thomas, D. W. (2013). Corporate lobbying, political connections, and the bailout of banks. Journal of Banking & Finance, 37(8), 3007-3017.
  • Bortolotti, B., & Faccio, M. (2009). Government control of privatized firms. Review of Financial Studies, 22(8), 2907-2939.
  • Boubakri, N., & Cosset, J. C. (1998). The financial and operating performance of newly privatized firms: Evidence from developing countries. The Journal of Finance, 53(3), 1081-1110.
  • Boubakri, N., Cosset, J. C., & Saffar, W. (2008). Political connections of newly privatized firms. Journal of Corporate Finance, 14(5), 654-673.
  • Boubakri, N., Cosset, J. C., & Saffar, W. (2012a). The impact of political connections on firms’ operating performance and financing decisions. Journal of Financial Research, 35(3), 397-423.
  • Boubakri, N., Guedhami, O., Mishra, D., & Saffar, W. (2012b). Political connections and the cost of equity capital. Journal of Corporate Finance, 18(3), 541-559.
  • Boycko, M., Shleifer, A., & Vishny, R. W. (1996). A theory of privatisation. The Economic Journal, 106(435), 309-319.
  • Boyd, B. (1990). Corporate linkages and organizational environment: A test of the resource dependence model. Strategic Management Journal, 11(6), 419-430.
  • Braggion, F., & Moore, L. (2013). The economic benefits of political connections in late Victorian Britain. The Journal of Economic History, 73(01), 142-176.
  • Bunkanwanicha, P., & Wiwattanakantang, Y. (2009). Big business owners in politics. Review of Financial Studies, 22(6), 2133-2168.
  • Carretta, A., Farina, V., Gon, A., & Parisi, A. (2012). Politicians ‘on board’: Do political connections affect banking activities in Italy? European Management Review, 9(2), 75- 83.
  • Chaney, P. K., Faccio, M., & Parsley, D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1), 58-76.
  • Charumilind, C., Kali, R., & Wiwattanakantang, Y. (2006). Connected lending: Thailand before the financial crisis. The Journal of Business, 79(1), 181-218.
  • Chen, Y. S., Shen, C. H., & Lin, C. Y. (2014). The benefits of political connection: Evidence from individual bank-loan contracts. Journal of Financial Services Research, 45(3), 287-305.
  • Claessens, S., Feijen, E., & Laeven, L. (2008). Political connections and preferential access to finance: The role of campaign contributions. Journal of Financial Economics, 88(3), 554-580.
  • Ding, S., Jia, C., Wu, Z., & Zhang, X. (2014). Executive political connections and firm performance: Comparative evidence from privately-controlled and state-owned enterprises. International Review of Financial Analysis, 36, 153-167.
  • Disli, M., Schoors, K., & Meir, J. (2013). Political connections and depositor discipline. Journal of Financial Stability, 9(4), 804-819.
  • Do, Q. A., Lee, Y. T., & Nguyen, B. D., (2013). Political connections and firm value: Evidence from the regression discontinuity design of close gubernatorial elections. Working Paper, University of Cambridge.
  • Duchin, R., & Sosyura, D. (2012). The politics of government investment. Journal of Financial Economics, 106(1), 24-48.
  • Faccio, M., & Lang, L. H. (2002). The ultimate ownership of Western European corporations. Journal of Financial Economics, 65(3), 365-395.
  • Faccio, M. (2006). Politically connected firms. The American Economic Review, 96(1), 369- 386.
  • Faccio, M. (2010). Differences between politically connected and non-connected firms: A cross-country analysis. Financial Management, 39(3), 905-928.
  • Faccio, M., & Hsu, H. C. (2017). Politically connected private equity and employment. Journal of Finance 72(2), 539-574.
  • Faccio, M., Masulis, R. W., & McConnell, J. (2006). Political connections and corporate bailouts. The Journal of Finance, 61(6), 2597-2635.
  • Faccio, M., & Parsley, D. C. (2009). Sudden deaths: Taking stock of political connections. Journal of Financial Quantitative Analysis, 44(3) 683-718.
  • Fan, J. P., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2), 330-357.
  • Ferguson, T., & Voth, H.-J. (2008). Betting on Hitler-the value of political connections in nazi Germany. Quarterly Journal of Economics, 123(1), 101-137.
  • Firth, M., Lin, C., Liu, P., & Wong, S. M. (2009). Inside the black box: Bank credit allocation in China’s private sector. Journal of Banking & Finance, 33(6), 1144-1155.
  • Fisman, R. (2001). Estimating the value of political connections. American Economic Review, 91(4) 1095-1102.
  • Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value? Review of Financial Studies, 22(6), 2331-2360.
  • Goldman, E., Rocholl, J., & So, J. (2013). Politically connected boards of directors and the allocation of procurement contracts. Review of Finance, 17(5), 1617-1648.
  • Hasan, I., Jackowicz, K., Kowalewski, O., & Kozlowski, L. (2014). Politically connected firms in Poland and their access to bank financing. Working Paper.
  • Hersch, P., Kemme, D., & Netter, J. (1997). Access to bank loans in a transition economy: The case of Hungary. Journal of Comparative Economics, 24(1), 79-89.
  • Hillman, A.J., 2005. Politicians on the board of directors: Do connections affect the bottom line?. Journal of Management, 31(3), 464-481.
  • Houston, J. F., Jiang, L., Lin, C., & Ma, Y. (2014). Political connections and the cost of bank loans. Journal of Accounting Research, 52(1), 193-243.
  • Infante, L., & Piazza, M. (2014). Political connections and preferential lending at local level: Some evidence from the Italian credit market. Journal of Corporate Finance, 29, 246- 262.
  • Jackowicz, K., Kozlowski, L., & Mielcarz, P. (2014). Political connections and operational performance of non-financial firms: New evidence from Poland. Emerging Markets Review, 20, 109-135.
  • Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: Evidence from Malaysia. Journal of Financial Economics, 67(2), 351-382.
  • Kang, J. K., & Zhang, L. (2017). Do outside directors with government experience create value?. Financial Management, (Forthcoming)
  • Kim, C. F., & Zhang, L. (2015). Corporate political connections and tax aggressiveness. Contemporary Accounting Research, 33 (1), 78-114.
  • Li, H., Meng, L., Wang, Q., & Zhou, L. A. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of Development Economics, 87(2), 283-299.
  • Malesky, E. J., & Taussig, M. (2009). Where is credit due? Legal institutions, connections, and the efficiency of bank lending in Vietnam. Journal of Law, Economics, and Organization, 25(2), 535-578.
  • Megginson, W. L., Nash, R. C., & Van Randenborgh, M. (1994). The financial and operating performance of newly privatized firms: An international empirical analysis. Journal of Finance, 49(2), 403-452.
  • Megginson, W. L., & Netter, J. M. (2001). From state to market: A survey of empirical studies on privatization. Journal of Economic Literature, 39(2), 321-389.
  • Menozzi, A., Urtiaga, M. G., & Vannoni, D. (2012). Board composition, political connections, and performance in state-owned enterprises. Industrial and Corporate Change, 21(3), 671-698.
  • Niessen, A., & Ruenzi, S. (2010). Political connectedness and firm performance: Evidence from Germany. German Economic Review, 11(4), 441-464.
  • Ozcan, G. B., & Gunduz, U. (2015) Political connectedness and business performance: Evidence from Turkish industry rankings. Business and Politics, 17(1), 41-73.
  • Perez, S. G., Sanchez, C. B., & Martín, D. J. S. (2014). Politically connected firms in Spain. BRQ Business Research Quarterly, 18(4), 1-16.
  • Pfeffer, Jefrey. & Gerald. R. Salancik, (1978). The external control of organizations: A resource dependence perspective. New York: Harper & Row.
  • Saeed, A., Belghitar, Y., & Clark, E. (2015). Do political connections affect firm performance? Evidence from a developing country. Emerging Markets Finance and Trade, 1-16
  • Saeed, A., Belghitar, Y., & Clark, E. (2014). Political connections and leverage: Firm level evidence from Pakistan. Managerial and Decision Economics, 36, 364-383.
  • Shleifer, A., & Vishny, V, R. (1994) Politician and firms. The Quarterly Journal of Economics, 109(4), 995-1025.
  • Wu, W., Wu, C., & Rui, O. M. (2010). Ownership and the value of political connections: Evidence from China. European Financial Management, 18(4), 695-729.
  • Wu, W., Wu, C., Zhou, C., & Wu, J. (2012). Political connections, tax benefits and firm performance: Evidence from China. Journal of Accounting and Public Policy, 31(3), 277-300.
  • Yeh, Y. H., Shu, P. G., & Chiu, S. B. (2013). Political connections, corporate governance and preferential bank loans. Pacific-Basin Finance Journal, 21(1), 1079-1101.
  • You, J., & Du, G. (2012). Are political connections a blessing or a curse? Evidence from CEO turnover in China. Corporate Governance: An International Review, 20(2), 179-194.
  • Zhang, H., Li, L., Zhou, D., & Zhou, P. (2014). Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China. Renewable Energy, 63, 330-336.
There are 62 citations in total.

Details

Primary Language English
Journal Section Research Article
Authors

İbrahim Yılmaz This is me

Publication Date September 1, 2018
Published in Issue Year 2018 Volume: 14 Issue: 4

Cite

APA Yılmaz, İ. (2018). POLITICALLY CONNECTED FIRMS: A REVIEW. Uluslararası Yönetim İktisat Ve İşletme Dergisi, 14(4), 1081-1101. https://doi.org/10.17130/ijmeb.2018445671