Political Connections, Family Ownership, and Firm Performance: An Emerging Economy

Abstract

Emerging economies are characterised by a high proportion of family-owned businesses, significant political corruption, and a weak legal system which creates a more favourable environment for politically-connected family firms. Hence, we investigate the effect of political connections on firm performance in family and non-family-owned firms through advanced panel estimation techniques. Our result is based on a sample of publicly listed 150 non-financial firms from Pakistan Stock Exchange (PSX) over the period 2013–2018. We demonstrate that politically connected family-owned firms perform better than non-family owned connected firms. These findings have important policy implications for countries such as Pakistan which have experienced recent increases in the number of family-owned firms.

Keywords:

• Political connections
• firm performance
• ROA
• family and non-family firms

JEL CLASSIFICATION:

• G32
• G34

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 According to Transparency International, Pakistan ranked 120th among 180 countries in the 2019 corruption perception index (Transparency International, 2019).