Birds of a feather sing together: Politically connected director clustering and its impact on firm performance

2020-05-14T09:49:33Z (GMT) by Jinbo WANG

The economic effects of firm’s political ties have attracted increasing scholarly attention in recent years. Different from prior research, this paper investigate the impact of political ties on firm performance for the lens of politically connected directors (PCD) clustering, which is a pervasive phenomenon in emerging economies but is ignored by academic researchers. This phenomenon enables us to build up a unified theoretical framework that considers the asset effect and liability effect of political ties at the same time. We hypothesize and find that there is a curvilinear relationship between firm performance and PCD clustering. Additionally, we find that there are many factors that affect PCD clustering. For instance, PCD clustering may reflect firms’ historical burden, the industry needs, the bargaining power of the largest shareholders, as well as CEOs’ preference.