Corporate Governance, Political Connections and Firm Performance: The Role of Political Regimes and Size

This article empirically examines the relationship between corporate governance and firm financial performance, and the interplay of political connections of 150 non-financial listed Pakistani firms ranging from 2001 to 2014. Generally, and consistent with the prior researchers, we reported that corporate governance is an essential predictor of firm financial performance in Pakistan. Moreover, the results indicate that political connections substitute non-executive directors (NXD), executive directors (EXD) and board meetings (BM) in terms of firm performance measure return on asset (ROA), whereas NXD and EXD complement in terms of Tobin’s Q. We also found some variations in these effects, when moving from large to small size sampled firms and dictator to democratic regimes. Theoretically, our results support the Agency, Resource Dependency and Stewardship theories.