Political connections and firm performance: Further evidence using a generalised quantile regression approach

Abstract

We investigate the relationship between political connectedness and firm performance employing the generalised quantile regression (GQR) method. We analysed the annual data of 190 Pakistani firms (including politically connected and non-politically connected firms) that were listed on the Pakistan Stock Exchange from 2007 to 2014. The analysis reveals that the political connections of the board directors impact firm performance negatively in different performance distributions. When compared to high-performing firms, the magnitude of impact of political connectedness is considerably higher in the case of low-performing firms. Overall, there is a negative correlation between political connectedness and performance after we account for the endogenous selection of the political connections in the board.

Keywords

• Politically connected firms
• Firm performance
• Generalised quantile regression