ARE POLITICAL CONNECTIONS IMPORTANT FOR FIRM PERFORMANCE?

Abstract

We explore the influence of political connections on the firm performance. An analysis of data from 395 Korean listed firms in manufacturing sector during 2011-2015 reveals that firms with high levels of political connections and such presence are negatively related to Tobin Q, operating cash flow, and ROA, supporting the rubber stamp perspective. An important implication is that Korean firms appointing former officials as outside directors are prone to negatively affect performance. In other words, instead of hiring former government officials to take advantages from the government, firms in Korea should consider and appoint experts rather than political connections outside-directors in order to increase their performance.