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Journal of Business Ethics

, Volume 139, Issue 2, pp 411–428 | Cite as

Political Connectedness, Corporate Governance, and Firm Performance

  • Polona Domadenik
  • Janez Prašnikar
  • Jan Svejnar
Article

Abstract

In this paper, we present and test a theory of how political connectedness (often linked to political corruption) affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint-stock companies with 100 or more employees. Using the data on supervisory board structure, together with balance sheet and income statement data for 2000–2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.

Keywords

Political connectedness Political corruption Corporate governance Productivity Politicians State-owned enterprises 

Notes

Acknowledgments

Domadenik's and Prašnikar’s  research in this paper was in part supported by the Slovene Research Agency’s Grant No. J5-227. Jan Svejnar benefitted from a Grant from the Grant Agency of the Czech Republic (Grant No. P402-15-24642S). The authors would like to thank two anonymous referees and Editor for their helpful comments.

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Polona Domadenik
    • 1
  • Janez Prašnikar
    • 1
  • Jan Svejnar
    • 2
  1. 1.Faculty of EconomicsUniversity of LjubljanaLjubljanaSlovenia
  2. 2.Columbia UniversityNew YorkUSA

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