Quid pro quo: Impact of political connections on the performance of Philippine firms

• Main Authors: Compañero, Hazel Kate Jamero, Escala, Julienne Marie Pereyra, Miergas, Laurence John Tonog, Ricasio, Jose Edric Barleta
• Format: text
• Language: English
• Published: Animo Repository 2022
• Subjects: Business enterprises—Finance—Political aspects—Philippines; Business enterprises—Political aspects—Philippines; Finance and Financial Management; Political Science
• Online Access: https://animorepository.dlsu.edu.ph/etdb_econ/42; https://animorepository.dlsu.edu.ph/cgi/viewcontent.cgi?article=1051&context=etdb_econ
• Institution: De La Salle University

Discussions on the presence of political connections in the business world have been emerging in recent years. Contradictory results are found in existing studies wherein such political connections can negatively or positively impact firm performance. Previous papers have also found that political connectedness is believed to be more pronounced in developing countries such as the Philippines. However, theoretical and empirical evidence on the impact of political connectedness on firm performance is yet to be conducted in the Philippines. Hence, our study investigates the impact of political connections on all non-financial publicly listed firms from 2010 to 2019 in the Philippines through the two-step system generalized method of moments (GMM) regression model. Consistent with the agency theory, we find a negative relationship between political connection and firm performance. We conclude that the presence of political connections is detrimental to firms as politically connected board of directors foster agency costs and problems.