The moderating role of director’s financial expertise in political connections and corporate financial performance in Pakistan

Prior theoretical and empirical studies have suggested that political influence affects the application of corporate governance and firm performance enormously. However, several fundamental questions remain to be answered. To fill this knowledge gap,the study's main objectives are examining the direct impact of political connection on firm financial performance in Pakistani non-financial listed companies and the moderating effect of director's financial expertise on political connections and firm financial performance. The study utilised panel data of 220 firms from 2008 to 2017 and used panel corrected standard error regression analysis. The results show that political connection negatively impacted firm financial performance, and director financial expertise as a moderator strengthened the relationship between political connections and firm financial performance. This study's results supported political economy theory in that weak judicial systems and unstable political systems have immense effects on investor’s rights. The study contributes to extending the existing literature on political connection by providing evidence of the impact of politically connected firms on firm performance in an emerging market. The study also deliberates on how the director’s financial expertise contributes towards the relationship. The findings could be generalised to other countries with similar degrees of development and culture.

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