Politically connected boards Family business groups and firm performance

Evidence from Indonesia

Main objective of this paper is 2 find out the relationship between farm performance and politically
connected boards. in the paper the authors used 1099 total sample from which 233 are from year 2010,
262 from 2011, 293 from 2012, 311 from 2013. The authors took sample from 9 different industries to
make the findings more acceptable. Samples were taken from energy, material, industrial, consumer,
discretionary, consumer staples, healthcare, real estate, information technology and telecommunication
industry.

though it was Though it was believed that political connection of any firm will increase the agency cost.
Due to poor corporate governance fisherman 2001. It was also found that politically connected
executives Lake professionalism.

But this paper has found that there is a positive connection between firm performance and political
connection of the board. Both Supervisory board and board of directors.

This paper supports the finding off Sue and Fung 2013. Sue and fun 2013 showed that there is a positive
relationship between farm performance and political connection.

Two primary hypothesis of this paper is that there is a better performance in politically connected board
and the second one is that there is direct connection between supervisory board and politics where
better performance is evident.

1099 samples were taken from different industries. Family owned and non-family owned firms were
taken to make the paper more representatives.

From the sample 36.85% firms had political connection and 63.85% firm did nit have any political
affiliation. But the s result was different for the family owned firms. I. Family owned firms 80.74% had
direct political connection and the rest 19.26% did not have major political affiliation.

To measure the variables both dependent and independent, different measurement techniques were
used. To access the market performance Tobin’s Q was used. The number of board members who had
prior or current political connection was considered as experimental variable.

The author used two model to test the hypothesis. The very first examined the firm performance and
political connection of the board and the second one was political connection of supervisory board and
board of directors independently.

After various measurement and analysis, it was found that

1.supervisory board members were more politically affiliated than the Board of director’s members.

2.Family owned firms have more political connection but their performance is lower than the non-family
firms.

The paper could not specify it lf the firms having political connection ruling party or of Indonesia were
enjoying more benefits than the firms having connection with the opposition party.

Future research can be conducted if there any significant Relationship between firm performance and
political connection with ruling or opposition party.