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The effect of political connections on firm performance: evidence from Egypt

Aref M. Eissa (Faculty of Commerce, Cairo University, Giza, Egypt) (College of Business Administration, Majmaah University, Al Majma'ah, Saudi Arabia)
Yasser Eliwa (School of Business and Economics, Loughborough University, Loughborough, UK) (Faculty of Commerce, Cairo University, Giza, Egypt)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 14 July 2021

Issue publication date: 13 August 2021

626

Abstract

Purpose

This paper examines the effect of political connections (PCs) on firms' profitability and market value in the Egyptian market after the uprising of 2013.

Design/methodology/approach

An empirical study is conducted based on 284 firm-year observations for non-financial listed firms on the EGX100 during the period of 2014–2017. To test the study’s hypothesis, two independent sample t-test, Pearson correlation analysis and ordinary least square (OLS) regressions are conducted.

Findings

The results suggest that PCs are common across all industries in Egypt, the PCs through top officers do not improve firm's profitability; however, it has a positive effect on firms' market value. Further, PCs through business owners improve neither profitability nor the market value. Finally, the results suggest that PCs through government ownership have a positive effect on both firms' profitability and market value.

Practical implications

The study’s finding encourages policymakers and regulators in emerging markets, e.g. Egypt, to develop stricter laws, policies and regulatory initiatives to restrain the potential conflict of interest in the politically connected firms.

Originality/value

To the best of the authors' knowledge, this study is one of the first to examine the relationship between PCs and both firms’ profitability and market value in Egypt.

Keywords

Acknowledgements

The authors are thankful for the constructive and stimulating comments received from Dr Wenxia Ge (the associate editor) and two anonymous reviewers. The authors would also like to thank the Deanship of Scientific Research at Majmaah University for supporting this work under Project No. R-2021-85. Any remaining errors are the authors' own.

Citation

Eissa, A.M. and Eliwa, Y. (2021), "The effect of political connections on firm performance: evidence from Egypt", Asian Review of Accounting, Vol. 29 No. 3, pp. 362-382. https://doi.org/10.1108/ARA-05-2020-0064

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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