Former Politicians as Corporate Directors: Good for Business?

43 Pages Posted: 28 May 2013  

Stephen Gray

University of Queensland - Business School; Duke University - Fuqua School of Business; Financial Research Network (FIRN)

Iman Harymawan

Universitas Airlangga

John Nowland

City University of Hong Kong

Date Written: May 27, 2013

Abstract

International studies suggest that directors with political connections provide significant benefits to shareholders. Yet, whether this is the case in the political and business environment in Australia is unknown. In this study, we examine the prevalence of former politicians as non-executive directors in ASX-listed companies and the market reaction to their appointment. In our sample of 1,561 companies in 2007, we find that former federal, state, local and foreign politicians hold directorships in 5.32% of firms. Our event study of new director appointments shows that the market reaction to the appointment of former politicians is significantly lower than non-politicians. This indicates that shareholders do not value the expertise that former politicians bring to corporate boards in Australia, particularly when their political parties are not in power and when they have less political and director experience. In summary, we find no evidence that former politician directors possess valuable political connections in Australia.

Keywords: board of directors, director appointments, director experience, politicians, political connections

JEL Classification: G34, G14, D72

Suggested Citation

Gray, Stephen and Harymawan, Iman and Nowland, John, Former Politicians as Corporate Directors: Good for Business? (May 27, 2013). Available at SSRN: https://ssrn.com/abstract=2270903 or http://dx.doi.org/10.2139/ssrn.2270903

Stephen Gray

University of Queensland - Business School ( email )

University of Queensland
Brisbane, Queensland 4072
Australia

Duke University - Fuqua School of Business

Box 90120
Durham, NC 27708-0120
United States

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Iman Harymawan

Universitas Airlangga ( email )

JL. Airlangga no 4
Surabaya, East Java 60286
Indonesia

HOME PAGE: http://www.feb.unair.ac.id

John Nowland (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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