Political connections of executives and directors: Relevant facts to understand the impact of politicians on firm valuation

Abstract

This paper examines the effect of political connections on firm valuation across large, listed corporations in emerging markets in the Americas. The study analyzes the impact of a higher number of politically connected individuals, their role as officers or directors, and the impact of tenure on firm market value. Our estimations show the positive impact of being a politically connected firm. Moreover, the strongly positive impact of politically connected directors is different from the weaker effect of politically connected officers. The intensity of politically connected directors positively impacts on firm valuation. There is a moderating role of tenure, that implies the positive beginning impact of politically connected directors on firm value decreases over time.