Former Politicians as Corporate Directors: Good for Business?

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