Political ties and corporate performance: why efficiency matters?

Abstract

Purpose – The purpose of this paper is to examine and explain the complex interrelationships which influence the performance of politically connected firms to create value for their providers of finance and other stakeholders. In doing so, it examines the interrelationships between efficiency and delivering on corporate performance of a firm with political ties. Design/methodology/approach – The authors gathered the literature from the Scopus website. They reviewed the literature of 58 manuscripts about the efficiency and performance of politically connected firms. Findings – The research finds that the better quality of efficiency of politically connected firms is positively related to the corporate performance of politically connected firms. The authors’ theoretical findings corroborate the political theory, agency theory, stakeholder theory, resource dependency theory and stewardship theory. These theories prove that political connections have an impact on firm performance as a politician reinforces the efficacy. To better understand the effect of political connections on solid performance due to efficiency, this study classifies various efficiencies and links them with political ties. Research limitations/implications – Several avenues of research are suggested to examine further the interrelationships identified. Practical implications – The authors’ conceptual findings are valuable for institutional investors, policymakers and stakeholders. To sum up, all theoretical shreds of evidence prove that politically connected firms can enhance performance via efficiency. Originality/value – The paper conceptualizes the efficiency and performance interrelationships of politically connected firms. The extant literature comparison allows an assessment of the extent to which different efficiency contexts lead to differences in performance.

Keywords

• Efficiency
• Performance
• Politically-connected
• Agency theory