Firms' political connections and performance in Brazil and Canada: an analysis of the effect of country institutional factors

This study examines the link between the political connections and financial performance of companies in Brazil and Canada, taking into account the moderating role of their country institutional factors. The authors use a comparative analysis of the largest listed companies in the two countries between 2010 and 2017 inclusive. There were four main results: (a) no significant difference was noted in the number of politically connected firms, although Brazilian companies were more politically connected on average than Canadian companies; a significant difference was noted between Brazil and Canada in terms of the number of politically connected directors and executive officers; (b) a significant and positive link emerged in both countries between political connections and firm performance, as measured by ROIC and ROA; (c) distinguishing between the political connections of directors and those of officers, a more significant positive association with performance was noticed in the latter; (d) most important, a clear and significant moderating role played by their country institutional factors was not apparent in the relationship between firms' political connections and performance. These latter results are mainly due to the lack of significant difference between the two countries in the number of politically connected firms. Contrary to expectations (and those of previous studies examining multicountry samples), the same effects from corporate political connections were shown in both countries. The study makes two important contributions. First, political connections seem to have become stronger than governance and institutional mechanisms, when it comes to controlling the behaviour of big corporations. Political connections have become so important that they influence the firm's management structure, whatever the institutional context; they seem to transcend governance mechanisms. Second, this study is among the first to demonstrate the need for investigating political connections at different firm levels; it shows the specific effect of political connections through executive officers rather than only through boards of directors, as is usually done.