Legal Corruption, Politically Connected Corporate Governance and Firm Performance

Polona Domadenik (), Janez Prašnikar () and Jan Svejnar
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Polona Domadenik: University of Ljubljana
Janez Prašnikar: University of Ljubljana

No 8321, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper we present and test a theory of how political corruption, found in many transition and emerging market economies, 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 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: politicians; productivity; corporate governance; corruption; state owned enterprises (search for similar items in EconPapers)
JEL-codes: D2 D21 D73 G34 L32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-07
New Economics Papers: this item is included in nep-bec, nep-cdm, nep-eff, nep-law, nep-pol and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published as 'Political Connectedness, Corporate Governance, and Firm Performance' in: Journal of Business Ethnics, 2016, 139 (2), 411 - 428

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