Proceedings of the 5th International Conference on Economics, Business and Economic Education Science, ICE-BEES 2022, 9-10 August 2022, Semarang, Indonesia

Research Article

Impact of Politically Connected Boards on Company Performance in the Emerging Market

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  • @INPROCEEDINGS{10.4108/eai.9-8-2022.2338632,
        author={Ester Catherina Kristiono and Supatmi  Supatmi and Rannisya Destha Irawan and Vionna Natasya Elyson},
        title={Impact of Politically Connected Boards on Company Performance in the Emerging Market},
        proceedings={Proceedings of the 5th International Conference on Economics, Business and Economic Education Science, ICE-BEES 2022, 9-10 August 2022, Semarang, Indonesia},
        publisher={EAI},
        proceedings_a={ICE-BEES},
        year={2023},
        month={11},
        keywords={politically connected boards accounting-based performance market-based performance},
        doi={10.4108/eai.9-8-2022.2338632}
    }
    
  • Ester Catherina Kristiono
    Supatmi Supatmi
    Rannisya Destha Irawan
    Vionna Natasya Elyson
    Year: 2023
    Impact of Politically Connected Boards on Company Performance in the Emerging Market
    ICE-BEES
    EAI
    DOI: 10.4108/eai.9-8-2022.2338632
Ester Catherina Kristiono1, Supatmi Supatmi1,*, Rannisya Destha Irawan1, Vionna Natasya Elyson1
  • 1: Universitas Kristen Satya Wacana
*Contact email: supatmi.supatmi@uksw.edu

Abstract

This study aimed to find empirical evidence about the effect of boards who have political connections, both board of commissioners and board of directors, on firm performance. This study used 152 samples of manufacturing companies listed on the Indonesia Stock Exchange during 2018-2019, with 290 observations to test the accounting-based performance and 296 to test the market-based performance. Politically connected boards were measured by the number of politically connected boards of commissioners and politically connected boards of directors in the company. Firm performance used market-based performance proxied by Tobin's Q and accounting-based performance proxied by return on assets (ROA). Based on panel data regression, the result showed that the higher number of politically connected boards of commissioners, the lower their accounting-based performance and market-based performance. However, the more politically connected boards of directors, the lower their accounting-based performance but did not affect companies' accounting-based performance. These findings reflected that politically connected boards in companies exacerbate agency conflict.