Political connections and firm performance: evidence from Indonesia

We study the performance of Indonesian firms based on political and non-political connections for the period of 2007 to 2018. Using advanced econometrics approach, we provide a comparative empirical analysis of the linkages between performance, firmspecific characteristics, and macroeconomic varia...

Full description

Saved in:
Bibliographic Details
Main Authors: Sakti, Muhammad Rizky Prima, Thas Thaker, Hassanudin Mohd, Khaliq, Ahmad
Format: Article
Language:English
English
Published: Universiti Putra Malaysia 2020
Subjects:
Online Access:http://irep.iium.edu.my/87909/1/87909_Political%20Connections%20and%20Firm%20Performance_article.pdf
http://irep.iium.edu.my/87909/2/87909_Political%20Connections%20and%20Firm%20Performance_scopus.pdf
http://irep.iium.edu.my/87909/
http://www.ijem.upm.edu.my/vol14no1/3)%20Political%20Connections.pdf
Tags: Add Tag
No Tags, Be the first to tag this record!
id my.iium.irep.87909
record_format dspace
spelling my.iium.irep.879092021-01-19T03:37:52Z http://irep.iium.edu.my/87909/ Political connections and firm performance: evidence from Indonesia Sakti, Muhammad Rizky Prima Thas Thaker, Hassanudin Mohd Khaliq, Ahmad HB Economic Theory HC79 Special topics. Including air pollution, consumer demands,famines, flow of fund etc HD28 Management. Industrial Management We study the performance of Indonesian firms based on political and non-political connections for the period of 2007 to 2018. Using advanced econometrics approach, we provide a comparative empirical analysis of the linkages between performance, firmspecific characteristics, and macroeconomic variables for politically-connected (PC) and non-politically-connected (NPC) firms. In addition, we also offer an empirical analysis of performance determinants across industries categories and Shariah-compliance status. The results show the performance (measured by ROA and ROE) of PC and NPC are significantly influenced by firm-specific characteristics (leverage, tangibility, firm size, and liquidity). While, only one macroeconomic factor (economic growth) has significant effect to ROA, and two macroeconomic factors (economic growth and inflation) have significant effect to ROE of PC firms. Focusing on politically-connected firms, we find a variation of performance determinants (both firm-specific and macroeconomic factors) across different industries categories. Interesting insight we noted that there is a persistent negative effect of tangibility on performance indicators in agriculture-, chemicals-, consumer goods-, infrastructure-, mining-, and miscellaneous industries. In terms of Shariah-compliant status, tangibility also exerts the negative and significant effect on ROA of both Shariahcompliance and non-Shariah compliance status. Another important insight is that the Shariah non-compliance status allows the politically-connected firms to use more leverage as there is no Shariah restrictions imposed to them. This suggests that high leverage significantly contributes to increase the ROA of Shariah non-compliance firms. Therefore, political linked status is still an imperative factor in influencing the Indonesian firm’s performance. This finding lends some support to the argument on the political connection and the performance of firm and offers several policy implications from a practical point of view with regard to the subject matter. Universiti Putra Malaysia 2020-04-01 Article PeerReviewed application/pdf en http://irep.iium.edu.my/87909/1/87909_Political%20Connections%20and%20Firm%20Performance_article.pdf application/pdf en http://irep.iium.edu.my/87909/2/87909_Political%20Connections%20and%20Firm%20Performance_scopus.pdf Sakti, Muhammad Rizky Prima and Thas Thaker, Hassanudin Mohd and Khaliq, Ahmad (2020) Political connections and firm performance: evidence from Indonesia. International Journal of Economics and Management, 14 (1). pp. 27-42. ISSN 1823-836X http://www.ijem.upm.edu.my/vol14no1/3)%20Political%20Connections.pdf
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
English
topic HB Economic Theory
HC79 Special topics. Including air pollution, consumer demands,famines, flow of fund etc
HD28 Management. Industrial Management
spellingShingle HB Economic Theory
HC79 Special topics. Including air pollution, consumer demands,famines, flow of fund etc
HD28 Management. Industrial Management
Sakti, Muhammad Rizky Prima
Thas Thaker, Hassanudin Mohd
Khaliq, Ahmad
Political connections and firm performance: evidence from Indonesia
description We study the performance of Indonesian firms based on political and non-political connections for the period of 2007 to 2018. Using advanced econometrics approach, we provide a comparative empirical analysis of the linkages between performance, firmspecific characteristics, and macroeconomic variables for politically-connected (PC) and non-politically-connected (NPC) firms. In addition, we also offer an empirical analysis of performance determinants across industries categories and Shariah-compliance status. The results show the performance (measured by ROA and ROE) of PC and NPC are significantly influenced by firm-specific characteristics (leverage, tangibility, firm size, and liquidity). While, only one macroeconomic factor (economic growth) has significant effect to ROA, and two macroeconomic factors (economic growth and inflation) have significant effect to ROE of PC firms. Focusing on politically-connected firms, we find a variation of performance determinants (both firm-specific and macroeconomic factors) across different industries categories. Interesting insight we noted that there is a persistent negative effect of tangibility on performance indicators in agriculture-, chemicals-, consumer goods-, infrastructure-, mining-, and miscellaneous industries. In terms of Shariah-compliant status, tangibility also exerts the negative and significant effect on ROA of both Shariahcompliance and non-Shariah compliance status. Another important insight is that the Shariah non-compliance status allows the politically-connected firms to use more leverage as there is no Shariah restrictions imposed to them. This suggests that high leverage significantly contributes to increase the ROA of Shariah non-compliance firms. Therefore, political linked status is still an imperative factor in influencing the Indonesian firm’s performance. This finding lends some support to the argument on the political connection and the performance of firm and offers several policy implications from a practical point of view with regard to the subject matter.
format Article
author Sakti, Muhammad Rizky Prima
Thas Thaker, Hassanudin Mohd
Khaliq, Ahmad
author_facet Sakti, Muhammad Rizky Prima
Thas Thaker, Hassanudin Mohd
Khaliq, Ahmad
author_sort Sakti, Muhammad Rizky Prima
title Political connections and firm performance: evidence from Indonesia
title_short Political connections and firm performance: evidence from Indonesia
title_full Political connections and firm performance: evidence from Indonesia
title_fullStr Political connections and firm performance: evidence from Indonesia
title_full_unstemmed Political connections and firm performance: evidence from Indonesia
title_sort political connections and firm performance: evidence from indonesia
publisher Universiti Putra Malaysia
publishDate 2020
url http://irep.iium.edu.my/87909/1/87909_Political%20Connections%20and%20Firm%20Performance_article.pdf
http://irep.iium.edu.my/87909/2/87909_Political%20Connections%20and%20Firm%20Performance_scopus.pdf
http://irep.iium.edu.my/87909/
http://www.ijem.upm.edu.my/vol14no1/3)%20Political%20Connections.pdf
_version_ 1690370779004272640
score 13.222552