Political Connections, Board of Directors and Firm Performance
The Case of Tanzania
This paper used firm-level dataset to offer a first systematic assessment of the effects of political connections on firm performance in Tanzania. The sample consists of all listed firms in the Dar es Salaam Stock Exchange (DSE). The paper employed fixed effects regressions to estimate the panel data collected. The results indicate that political connections in a board of directors hurt firm performance as measured by changes in return on assets and return on sales. This finding is robust in various alternative regressions estimated. This suggests that firms with politically-connected directors exhibit significantly worse firm performance than non-connected counterparts. Overall, the results indicate that the appointment of politically-connected directors does not enhance firm efficacy but rather fulfil political goals of politicians.
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