Politically Connected Boards and Stock Price Crash Risk

Within the framework of the two-tier corporate governance system in Indonesia, this study investigates the extent to which the political connections between firms and boards shape the firms’ propensity for stock price crashes. Unlike in existing literature, the influence of transactional and relational political ties as determinants of crash risk depends critically on board hierarchy. Using 743 Indonesian listed firms for 2011–2025, we find that the supervisory board (commissioners), rather than the management board (directors), serves as the mechanism through which transactional and relational political connections affect crash risk. Transactional and relational commissioners increase and decrease crash risk, respectively, whereas transactional or relational directors have no significant effects. When commissioners play a critical role in a two-tier board system, the influence of politically linked directors disappears. The primary results are robust to various estimations. Furthermore, information asymmetry and financial constraints moderate the main results.