Role of Political Connections in the Relationship of Corporate Governance and Financial Performance – Study of Banks in Pakistan

Abstract

This study aims to examine the relationship between corporate governance and the financial performance of banks in Pakistan, further investigate the moderating role of political connection. Panel data from 22 listed banks spanning the period 2013-2017 were gathered, sourced from the annual reports available on the Pakistan Stock Exchange website. Analysis was conducted using Gretl and MS Excel, involving descriptive statistics of variables, as well as other investigative tests such as correlation and regression analysis. Two hypotheses were tested through regression analyses. A positive relationship was identified between the independent variable, corporate governance, and the dependent variable, financial performance. Conversely, a negative relationship was observed between political connections and bank performance. Likewise, political connections were found to negatively moderate the association between corporate governance and financial performance. This study represents a significant contribution to Pakistani literature by comprehensively examining the impact of corporate governance on financial performance while acknowledging the moderating effect of political connections. The findings of the study are important for policy makers, investors and banks in formulating conducive policies.

Keywords: Corporate Governance, Banks Performance, Political Connections, Pakistan