Legal Corruption, Politically Connected Corporate Governance and Firm Performance

28 Pages Posted: 19 Jul 2014

See all articles by Polona Domadenik

Polona Domadenik

University of Ljubljana - Faculty of Economics

Janez Prašnikar

University of Ljubljana - Faculty of Economics

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana

Abstract

In this paper we present and test a theory of how political corruption, found in many transition and emerging market economies, affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint stock companies with 100 or more employees. Using the supervisory board structure, together with balance sheet and income statement data for 2000-2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.

Keywords: corruption, corporate governance, productivity, politicians, state owned enterprises

JEL Classification: D2, D21, D73, G34, L32

Suggested Citation

Domadenik, Polona and Prašnikar, Janez and Svejnar, Jan, Legal Corruption, Politically Connected Corporate Governance and Firm Performance. IZA Discussion Paper No. 8321, Available at SSRN: https://ssrn.com/abstract=2468497 or http://dx.doi.org/10.2139/ssrn.2468497

Polona Domadenik (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

HOME PAGE: http://www.ef.uni-lj.si/en/lecturers/lecturer.asp?id=236

Janez Prašnikar

University of Ljubljana - Faculty of Economics

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Jan Svejnar

School of International and Public Affairs, Columbia University, NY, USA ( email )

420 West 118th Street
New York, NY 10027
United States

CEPR

London
United Kingdom

IZA

P.O. Box 7240
Bonn, D-53072
Germany

CERGE-EI

P.O. Box 882
7 Politickych veznu
111 21 Prague 1, Prague
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

University of Ljubljana ( email )

Dunajska 104
Ljubljana, 1000
Slovenia

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