Political connections, media coverage and firm performance: evidence from an emerging market

Abstract

Purpose: The purpose of this study is to investigate the effect of politically connected directors (PCDs), media coverage and their interaction on firm performance in an emerging market economy (UAE). Design/methodology/approach: This study relies on the agency theory and the resource dependency theory and uses a panel data set of a sample of non-financial firms listed in the UAE stock market from 2009 to 2016. Data were analyzed using fixed-effects regression. Instrumental variable regression was used to address potential endogeneity. Findings: PCDs and media are positively associated with firm performance (ROE and Tobin’s q). Media moderates the PCDs–performance relationship, as the interaction between PCDs and media coverage is negatively associated with firm performance. Under growing media attention, reputational concerns prevent PCDs from using their connections to gain particular advantages to their firms to avoid damaging their image. Practical implications: Regulators need to acknowledge and define the roles of PCDs and media in business governance. Originality/value: To the best of authors’ knowledge, this study is the first empirical examination testing the effect of the interplay between PCDs and media on firm performance in an emerging market economy such as UAE.