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臺大管理論叢
第
27
卷第
2
期
23
Political Connection and Firm Performance
1. Purpose/Objective
The incentive for corporations to become politically connected has been recognized
among economists for many years (Faccio, 2006). The value of political connections can
take various forms, including preferential treatment by government-owned enterprises,
lighter taxation, preferential treatment in competition for government contracts, relaxed
regulatory oversight of the company in question, and many other forms. From this
perspective, the government plays the role of a “helping hand”. On the other hand, however,
political connections may help the government and affiliated politicians to extract political
benefits at the expense of the wealth maximization of stakeholders in the firm. This view is
called a “grabbing hand” of the government (Shleifer and Vishny, 2002). Building upon the
two perspectives, this paper examines how political connections affect firm performance.
It has been found that political connections help firms to secure favorable regulatory
conditions and access to resources such as bank loans (e.g., Agrawal and Knoeber, 2001;
Faccio, 2006). Politically connected firms are also more likely to resort to the courts in
business disputes (Li et al., 2008). It has also been documented that the quality of earnings
reported by politically-connected firms is significantly poorer (Chaney et al., 2011). While
Goldman et al. (2009) show a positive abnormal stock return following the announcement of
the nomination of a politically-connected individual to the board in the U.S., others find that
among China’s newly-privatized firms, those with political connections underperform their
non-connected counterparts (Boubakri et al., 2008; Fan et al., 2007). Although studies have
examined the implications of political connections in different countries, limited research in
Taiwan investigates whether the marginal benefits of connections outweigh the marginal
costs. Since the capital markets development as well as the economic and political
environment in Taiwan are distinct from those of other countries, we believe it is important
to examine this issue using Taiwanese settings. Given the competing theoretical arguments as
well as mixed empirical evidence, we think political connections can either enhance or
diminish firm performance.
Hsin-Yi Chi
, Professor, Department of Accounting, National Chung Hsing University
Tzu-Ching Weng
, Associate Professor, Department of Accounting, Feng Chia University
Chih-Hsien Liao
, Associate Professor, Department of Accounting, National Taiwan University
Hsin-Yi Huang
, Ph.D. Candidate, Graduate Institute of Accounting, National Taiwan University