SUPERVISORY BOARD DIVERSITY AND POLITICALLY CONNECTED COMPANIES PERFOMANCE

Desi Ilona, Zaitul Zaitul, Eugene Okyere-Kwakye, Rina Asmeri

Abstract


Main Purpose - This study examines whether board diversity is lower in politically connected companies than in non-political affiliated companies and determines whether board diversity is less effective in a politically connected company.

Method - Using 651 companies-years observation, the univariate analysis using the independent t-test and mean to see any significant difference of board diversity in the politically connected company vs non-connected companies. Besides, multiple regression analysis is employed to determine the effectiveness of board diversity in two types of companies.

Main Findings – This study found that board diversity (national, gender, and experience diversity) is lower in politically connected companies, and there is a significant difference between these types of companies. Besides, board diversity is less effective in political companies than in non-political affiliated companies.

Theory and Practical Implications - This study implies that politically connected companies should increase board diversity and its effectiveness to boost their performance. Theoretically, this study found that the resources dependent and agency theories are not sound in politically connected companies.

Novelty – This study provides insightful discussion about whether board diversity is worthwhile in politically connected companies in the unique continental European corporate governance system, Indonesia, where there was little discussion from previous studies. 


Keywords


board diversity; politically connected company; Indonesia

Full Text:

PDF

References


Abdul, W. E. A., Marzuk, M. M., Jaafar, S. B., & Masron, T. A. (2018). Board diversity and total directors' remuneration : evidence from an emerging market. Pacific Accounting Review, 30(2), 243–272.

Arosa, B., Iturralde, T., & Maseda, A. (2010). Ownership structure and firm performance in non-listed firms: Evidence from Spain. Journal of Family Business Strategy, 1(2), 88–96. https://doi.org/10.1016/j.jfbs.2010.03.001

Bushman, R. M., Piotroski, J. D., & Smith, A. J. (2004). What Determines Corporate Transparency? Journal of Accounting Research, 42(2)(2), 207–252. https://doi.org/10.1111/j.1475-679X.2004.00136.x

Campbell, K., & Mínguez-Vera, A. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83(3), 435–451. https://doi.org/10.1007/s10551-007-9630-y

Carpenter, M. A., & Fredrickson, J. W. (2001). Top management teams, global strategic posture, and the moderating role of uncertainty. Academy of Management Journal, 44(3), 533–545. https://doi.org/10.2307/3069368

Carter, D. A., D'Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance, 18(5), 396–414. https://doi.org/10.1111/j.1467-8683.2010.00809.x

Carter, D., Simkins, B., & Simpson, W. (2003). Corporate Governance, Board Diversity, and Firm Value. The Financial Review, Wiley Online Library, 38(1), 33–53. https://doi.org/10.1111/1540-6288.00034

Chaney, P. K., Faccio, M., & Parsley, D. (2011). The quality of accounting information in politically connected firms. Journal of Accounting and Economics, 51(1–2), 58–76. https://doi.org/10.1016/j.jacceco.2010.07.003

Darmadi, S. (2013). Board members' education and firm performance: evidence from a developing economy. International Journal of Commerce and Management, 23(2), 113–135. https://doi.org/10.1108/10569211311324911

Datta, D., & Ganguli, S. K. (2014). Political Connection and Firm Value–Theory and Indian Evidence. South Asian Journal of Global Business Research, 3(2), 170–189. https://doi.org/10.1108/SAJGBR-03-2013-0020

Evans, W. R., & Carson, C. M. (2005). A social capital explanation of the relationship between functional diversity and group performance. Team Performance Management: An International Journal, 11(7/8), 302–315. https://doi.org/10.1108/13527590510635170

Faccio, M. (2006). Politically connected firms. American Economic Review, 96(1), 369–386. https://doi.org/10.1257/000282806776157704

Fernández-Temprano, M. A., & Tejerina-Gaite, F. (2020). Types of director, board diversity and firm performance. Corporate Governance (Bingley), 20(2), 324–342. https://doi.org/10.1108/CG-03-2019-0096

Goldman, E., Rocholl, J., & So, J. (2009). Do politically connected boards affect firm value. Review of Financial Studies, 22(6), 2331–2360. https://doi.org/10.1093/rfs/hhn088

Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 15(3), 241–250. https://doi.org/10.1002/smj.4250150305

Gul, F. A. (2006). Auditors' response to political connections and cronyism in Malaysia. Journal of Accounting Research, 44(5), 931–963. https://doi.org/10.1111/j.1475-679X.2006.00220.x

Gul, F. A., Munir, S., & Zhang, L. (2016). Ethnicity, Politics and Firm Performance: Evidence from Malaysia. Pacific-Basin Finance Journal, 40, 115–129. https://doi.org/10.1016/j.pacfin.2016.10.005

Habib, A., & Muhammadi, A. H. (2018). Political connections and audit report lag: Indonesian evidence. International Journal of Accounting & Information Management, 18(8), 00–00. https://doi.org/10.1108/IJAIM-08-2016-0086

Haniffa, R., & Hudaib, M. (2006). Corporate Governance Structure and Performance of Malaysian Listed Companies. Journal of Business Finance&Accounting, 33(7–8), 1034–1062. https://doi.org/10.1111/j.1468-5957.2006.00594.x

Harymawan, I.-. (2017). Why do firms appoint former military personnel as directors? Evidence of loan interest rate in militarily connected firms in Indonesia. Asian Review of Accounting, 00–00. https://doi.org/10.1108/ARA-07-2016-0086

Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change. Journal of Management Studies, 37(2), 235–256. https://doi.org/10.1111/1467-6486.00179

Hu, Y., & Izumida, S. (2008). Ownership concentration and corporate performance: A causal analysis with Japanese panel data. Corporate Governance, 16(4), 342–358. https://doi.org/10.1111/j.1467-8683.2008.00690.x

Ilona, D. (2015). Directors' Diversity, Ownership Concentration and company performance in Indonesia listed companies. Universiti Utara Malaysia.

Ilona, D., Zaitul, & Ethika. (2019). Supervisory Board and company borrowing : the case of developing economics. Journal of Reviews on Global Economics, 8, 730–738.

Johnson, S., & Mitton, T. (2003). Cronyism and capital controls: Evidence from Malaysia. Journal of Financial Economics, 67(2), 351–382. https://doi.org/10.1016/S0304-405X(02)00255-6

Kagzi, M., & Guha, M. (2018). Does board demographic diversity influence firm performance? Evidence from Indian-knowledge intensive firms. Benchmarking, 25(3), 1028–1058. https://doi.org/10.1108/BIJ-07-2017-0203

Kim, B., & Lee, I. (2003). Agency problems and performance of Korean companies during the Asian financial crisis: Chaebol vs. non-chaebol firms. Pacific Basin Finance Journal, 11(3), 327–348. https://doi.org/10.1016/S0927-538X(03)00027-1

Kuo, H., Wang, L., & Yeh, L. (2018). The role of education of directors in influencing firm R&D investment. Asia Pacific Management Review, 23(2), 108–120. https://doi.org/10.1016/j.apmrv.2017.05.002

Lin, Z. J., & Liu, M. (2009). The impact of corporate governance on auditor choice: Evidence from China. Journal of International Accounting, Auditing and Taxation, 18(1), 44–59. https://doi.org/10.1016/j.intaccaudtax.2008.12.005

Loukil, N., Yousfi, O., & Yerbanga, R. (2019). Does gender diversity on boards influence stock market liquidity? Empirical evidence from the French market. Corporate Governance (Bingley), 19(4), 669–703. https://doi.org/10.1108/CG-09-2018-0291

Mak, Y. T., & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific Basin Finance Journal, 13(3), 301–318. https://doi.org/10.1016/j.pacfin.2004.09.002

Mohammed, N. F., Ahmed, K., & Ji, X.-D. (2017). Accounting conservatism , corporate governance and political connections. Asian Review of Accounting, 25(2), 288–318. https://doi.org/10.1108/ARA-04-2016-0041

Ooi, C., Hooy, C., & Som, A. P. M. (2017). The influence of board diversity in human capital and social capital in crisis. Managerial Finance, 43(6), 700–719. https://doi.org/10.1108/MF-08-2016-0226

Pelled, L. H. (1996). Demographic Diversity, Conflict, and Work Group Outcomes: An Intervening Process Theory. Organization Science, 7(6), 615–631. https://doi.org/10.1287/orsc.7.6.615

Polsiri, P., & Jiraporn, P. (2012). Political connections, ownership structure, and financial institution failure. Journal of Multinational Financial Management, 22(1–2), 39–53. https://doi.org/10.1016/j.mulfin.2012.01.001

Rajan, R. G., & Zingales, L. (1998). Which Capitalism? Lessons Form the East Asian Crisis. Journal of Applied Corporate Finance, 11(3), 40–48. https://doi.org/10.1111/j.1745-6622.1998.tb00501.x

Ruigrok, W., Peck, S., & Tacheva, S. (2007). Nationality and gender diversity on Swiss corporate boards. Corporate Governance, 15(4), 546–557. https://doi.org/10.1111/j.1467-8683.2007.00587.x

Sani, A. A., Abdul Latif, R., & Al-Dhamari, R. A. (2020). CEO discretion, political connection and real earnings management in Nigeria. Management Research Review. https://doi.org/10.1108/MRR-12-2018-0460

Shan, Y. G., & McIver, R. P. (2011). Corporate governance mechanisms and financial performance in china: Panel data evidence on listed non financial companies. Asia Pacific Business Review, 17(3), 301–324. https://doi.org/10.1080/13602380903522325

Su, Z., Fung, H., & Yau, J. (2013). Political connections and corporate overinvestment : evidence from China. International Journal of Accounting and Information Management, 21(4), 285–296. https://doi.org/10.1108/IJAIM-02-2013-0006

Tam, O. K., & Tan, M. G. (2007). Ownership , Governance and Firm Performance Ownership , Governance and Firm Performance in Malaysia. Corporate Governance An International Review, 15(March), 208–222. https://doi.org/10.1111/j.1467-8683.2007.00555.x

Tee, C. M. (2018). Political connections , institutional monitoring and the cost of debt : evidence from Malaysian firms. International Journal of Managerial Finance, 14(2), 210–229. https://doi.org/10.1108/IJMF-07-2017-0143

Wahab, E. A. A., Ariff, A. M., Marzuki, M. M., & Sanusi, Z. M. (2017). Political connections , corporate governance , and tax aggressiveness in Malaysia. Asian Review of Accounting, 25(3), 424–451. https://doi.org/10.1108/ARA-05-2016-0053

Wahab, E. A. A., Zain, M. M., & Rahman, R. A. (2015). Political connections : a threat to auditor independence ? Journal of Accounting in Emerging Economies, 5(2), 222–246. https://doi.org/10.1108/JAEE-03-2012-0013

Wiwattanakantang, Y. (2001). Controlling Shareolders and Corporate Value: Evidence from Thailand. Pacific Basin Finance Journal (Vol. 9).

Wu, R. (2012). Does Corporate Governance Quality Lend Credibility to Open-Market Share Repurchase Announcements? Corporate Governance : An International Review, 20(5), 490–508. https://doi.org/10.1111/corg.12003

Yang, J., Lian, J., & Liu, X. (2012). Political connections , bank loans and firm value. Nankai Business Review International, 3(4), 376–397. https://doi.org/10.1108/20408741211283737

Yarbrough, E., Abebe, M., & Dadanlar, H. (2017). Board political experience and firm internationalization strategy. Journal of Strategy and Management, 10(4), 401–416. https://doi.org/10.1108/JSMA-07-2016-0043

Yunos, R. M., Ismail, Z., & Smith, M. (2015). Ethnicity and accounting conservatism : Malaysian evidence. Asian Review of Accounting, 20(1), 34–57. https://doi.org/10.1108/13217341211224718

Zaitul, Melmusi, Z., & Ilona, D. (2019). Corporate governance and corporate performance: Financial crisis 2008. Journal of Reviews on Global Economics, 8, 625–636.




DOI: https://doi.org/10.17509/jaset.v14i2.47675

Refbacks

  • There are currently no refbacks.


Creative Commons License

Jurnal ASET (Akuntansi Riset) is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

View My Stats Visitor