Political connections and firm performance in an emerging market context: the mediating effect of sustainability disclosure

Purpose This study examines the mediating effect of sustainability disclosure on the relationship between political connections and firm performance from the resource-based view. Design/methodology/approach The sample of this study was sourced from 888 public companies listed on the Indonesia Stock Exchange (IDX) from 2016 to 2017. Path analysis and Sobel tests were used to determine the mediating effect of sustainability disclosure. Findings The results show that political connections have a positive and significant influence on firm performance. Furthermore, sustainability disclosures mediate the relationship between political connections and firm performance. Research limitations/implications In the context of developing countries such as Indonesia, managers can make the existence of parties in politically connected companies as a medium to demonstrate their adherence to external stakeholders through the disclosure of sustainability information. Originality/value This study is the first to investigate the mediating effect of sustainability disclosure on the relationship between political connections and firm performance, especially in emerging markets. The parties of the politically connected companies use a social responsibility mechanism as a medium that can sustain their operational sustainability whilst gaining long-term economic benefits.