Political connections, related party transactions and firm performance: evidence from Tunisian context

Abstract

PurposeThe purpose of this paper is to examine the effect of the presence of political connections on firm performance through related party transactions in Tunisia, a country where that is characterized by the Jasmin revolution in 2011.Design/methodology/approachThe study uses a sample of nonfinancial firms between 2008 and 2014 listed on the Tunis Stock Exchange and uses generalized least squares on panel data.FindingsFirst, the political connection and related parties' transaction enhances firm's market performance. Second, the study reveals that political connection moderates the relationship between the related party transactions and firm performance only in the period after revolution. Indeed, politicians seem to have used related party transactions to expropriate firms in a period of political instability. Finally, we show that politicians are more attracted by firms with higher market performance and with higher number of related parties' transactions.Practical implicationsThe empirical findings contribute to the current debate on the benefits and costs of political connections in emerging economies. It shows that political connections enhance market valuation of firms. However, political connection costs appear during political instability period.Originality/valueThis study addresses the interaction between related party transactions, political connections and firm performance. It is the first study to test if the related party transactions are used as a tool by politicians to expropriate firms.