Corporate, social, political connections and corporate governance: A review

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Abstract

Considering the important role of connections in corporate governance quality, this review paper has investigated the effectiveness of corporate, social, and political connections on corporate governance practices. In general, the findings of this research show that networking activities in various forms positively and negatively affect corporate governance practices. As far as corporate connections are concerned, there is no consensus on the relationship between interlocked boards and firm performance. Moreover, interlocking boards are positively associated with the propagation of some governance malpractices such as earnings manipulation and options backdating. Regarding social connections, the evidence provides contradictory results regarding the effects of social ties on CEO compensation and firm performance. Finally, as for political connections, the findings related to the impact of political connections on corporate decisions and firm value are mixed. Furthermore, politically connected firms pay lower taxes; have more access to credit markets; and enjoy governmental contracts. Additionally, in some cases, political ties are positively associated with corrupt activities.

Keywords: Connections, Interlocked Boards, Political Connection, Interlocking Directorates, Corporate Governance, Board Networks

Authors’ individual contribution: Conceptualization — M.R. and A.F.; Validation — M.R. and C.C.; Formal Analysis — A.F.; Investigation — A.F.; Writing — Original Draft — A.F.; Writing — Review & Editing — M.R. and C.C.; Supervision — M.R. and C.C.; Project Administration — M.R. and C.C.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, G38, M41

Received: 05.05.2021
Accepted: 06.08.2021
Published online: 10.08.2021

How to cite this paper: Faizabad, A., Refakar, M., & Champagne, C. (2021). Corporate, social, political connections and corporate governance: A review. Corporate Ownership & Control, 18(4), 192–206. https://doi.org/10.22495/cocv18i4art13