Risk management committee and firm performance: The moderating effect of political connection
DOI:
https://doi.org/10.18196/jai.v26i1.20082Keywords:
Firm Performance, Political Connection, Risk CommitteeAbstract
Research aims: This study seeks to prove empirical evidence regarding the moderating effect of political connection to risk committee and firm performance relationship.
Design/Methodology/Approach: The method used in this research uses a quantitative approach. The data used is financial companies registered on the Indonesian Stock Exchange (IDX) in the 2019 – 2021 period. The data used and meets the criteria is 129 data.
Research findings: The research results show that the size of the risk management committee has an influence on firm performance. The large number of risk management committee members helps companies assess potential risks early. Political connections weaken the relationship between the risk management committee and firm performance.
Theoretical contribution/ Originality: The originality of this research is based on the moderating results of political connections which provide a weakening effect compared to previous studies.
Practitioner/Policy implications: For practitioners and companies, they can consider it in decision making before having a board of directors join politics
Research limitations/Implications: Limitation of this research is research scope just in financial sector and only risk committee size used in this research.
References
Abubakar, A., Bala Ado, A., Mohamed, M., & Mustapha, U. (2018). The Effect of Risk Management Committee Attributes and Board Financial Knowledge on the Financial Performance of Listed Banks in Nigeria.
Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 3213-3226. https://doi.org/https://doi.org/10.1016/j.jbankfin.2011.10.020
Aldhamari, R., Mohamad Nor, M. N., Boudiab, M., & Mas'ud, A. (2020). The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia. Corporate Governance: The International Journal of Business in Society, 20(7), 1281-1305. https://doi.org/10.1108/CG-04-2020-0122
Ames, D. A., Hines, C. S., & Sankara, J. (2018). Board risk committees: Insurer financial strength ratings and performance. Journal of Accounting and Public Policy, 37(2), 130-145. https://doi.org/https://doi.org/10.1016/j.jaccpubpol.2018.02.003
Apriliani, M. T., & Dewayanto, T. (2019). Pengaruh Tata Kelola Perusahaan, Ukuran Perusahaan Dan Umur Perusahaan Terhadap Kinerja Perusahaan [board size, board independence and board female diversity, firm size, firm age and firm performance]. Diponegoro Journal of Accounting. https://ejournal3.undip.ac.id/index.php/accounting/article/view/25868
Bhatt, P. R., & Bhatt, R. R. (2017). Corporate governance and firm performance in Malaysia. Corporate Governance: The International Journal of Business in Society, 17(5), 896-912. https://doi.org/10.1108/CG-03-2016-0054
Bhuiyan, M. B. U., Cheema, M. A., & Man, Y. (2021). Risk committee, corporate risk-taking and firm value. Managerial Finance, 47(3), 285-309. https://doi.org/10.1108/MF-07-2019-0322
Boubakri, N., Mansi, S. A., & Saffar, W. (2013). Political institutions, connectedness, and corporate risk-taking. Journal of International Business Studies, 44(3), 195-215. http://www.jstor.org.ezproxy.ugm.ac.id/stable/23434108
Cheema, M. U., Munir, R., & Su, S. (2016). Political connections and organisational performance: evidence from Pakistan. International Journal of Accounting & Information Management, 24(4), 321-338. https://doi.org/10.1108/IJAIM-05-2016-0053
Dicko, S. (2017). Political connections, ownership structure and quality of governance. International Journal of Managerial Finance, 13(4), 358-377. https://doi.org/10.1108/IJMF-01-2017-0010
Eissa, A. M., & Eliwa, Y. (2021). The effect of political connections on firm performance: evidence from Egypt. Asian Review of Accounting, 29(3), 362-382. https://doi.org/10.1108/ARA-05-2020-0064
Elamer, A., & Benyazid, I. (2018). The Impact of Risk Committee on Financial Performance of UK Financial Institutions. International Journal of Accounting and Finance, 8. https://doi.org/10.1504/IJAF.2018.10014470
Faccio, M. (2006). Politically Connected Firms. The American Economic Review, 96(1), 369-386. http://www.jstor.org.ezproxy.ugm.ac.id/stable/30034371
Faisal, F., Ridhasyah, R., & Haryanto, H. (2021). Political connections and firm performance in an emerging market context: the mediating effect of sustainability disclosure. International Journal of Emerging Markets, ahead-of-print(ahead-of-print). https://doi.org/10.1108/IJOEM-07-2020-0753
Fan, J. P. H., Wong, T. J., & Zhang, T. (2007). Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms. Journal of Financial Economics, 84(2), 330-357. https://doi.org/https://doi.org/10.1016/j.jfineco.2006.03.008
Ghazieh, L., & Chebana, N. (2021). The effectiveness of risk management system and firm performance in the European context. Journal of Economics, Finance and Administrative Science, 26(52), 182-196. https://doi.org/10.1108/JEFAS-07-2019-0118
Ha, P. V., & Frömmel, M. (2020). Political connection heterogeneity and firm value in Vietnam. Cogent Business & Management, 7(1), 1738202. https://doi.org/10.1080/23311975.2020.1738202
Iselin, M. (2020). Estimating the potential impact of requiring a stand-alone board-level risk committee. Journal of Accounting and Public Policy, 39(5), 106709. https://doi.org/https://doi.org/10.1016/j.jaccpubpol.2019.106709
Islam, M. S. U., Wong, W.-C., & Yusoff, M. Y. B. M. (2023). Types of political connections, election years, and firm performance in Pakistan: Moderating role of external monitoring. Cogent Business & Management, 10(2), 2224139. https://doi.org/10.1080/23311975.2023.2224139
Jackowicz, K., Kozłowski, Ł., & Mielcarz, P. (2014). Political connections and operational performance of non-financial firms: New evidence from Poland. Emerging Markets Review, 20, 109-135. https://doi.org/https://doi.org/10.1016/j.ememar.2014.06.005
Jensen, M. C., & Meckling, W. H. (1979). Rights and Production Functions: An Application to Labor-Managed Firms and Codetermination. The Journal of Business, 52(4), 469-506. http://www.jstor.org/stable/2352442
Junus, O., Nasih, M., Anshori, M., & Harymawan, I. (2022). Politically connected independent board and firm performance. Cogent Economics & Finance, 10(1), 2069638. https://doi.org/10.1080/23322039.2022.2069638
Kallamu, B. (2015). Risk Management Committee Attributes and Firm Performance. International Finance and Banking, 2, 1. https://doi.org/10.5296/ifb.v2i2.8580
Karim, S., Vigne, S. A., Lucey, B. M., & Naeem, M. A. (2022). Discretionary impacts of the risk management committee attributes on firm performance: do board size matter? International Journal of Emerging Markets, ahead-of-print(ahead-of-print). https://doi.org/10.1108/IJOEM-05-2022-0782
Ling, L., Zhou, X., Liang, Q., Song, P., & Zeng, H. (2016). Political connections, overinvestments and firm performance: Evidence from Chinese listed real estate firms. Finance Research Letters, 18, 328-333. https://doi.org/https://doi.org/10.1016/j.frl.2016.05.009
Malik, M. F., Zaman, M., & Buckby, S. (2020). Enterprise risk management and firm performance: Role of the risk committee. Journal of Contemporary Accounting & Economics, 16(1), 100178. https://doi.org/https://doi.org/10.1016/j.jcae.2019.100178
Musallam, S. R. M. (2018). The direct and indirect effect of the existence of risk management on the relationship between audit committee and corporate social responsibility disclosure. Benchmarking: An International Journal, 25(9), 4125-4138. https://doi.org/10.1108/BIJ-03-2018-0050
Orazalin, N., & Mahmood, M. (2019). The financial crisis as a wake-up call: corporate governance and bank performance in an emerging economy. Corporate Governance: The International Journal of Business in Society, 19(1), 80-101. https://doi.org/10.1108/CG-02-2018-0080
Pintea, M. O., Pop, A. M., Gavriletea, M. D., & Sechel, I. C. (2020). Corporate governance and financial performance: evidence from Romania. Journal of Economics Studies.
Putri, P. A. Y., & Endiana, I. D. M. (2020). Pengaruh sistem informasi akuntansi dan sistem pengendalian internal terhadap kinerja perusahaan (studi kasus pada koperasi di kecamatan payangan). KRISNA: Kumpulan Riset Akuntansi, 11(2), 179-189.
Rocca, M. L., Fasano, F., Cappa, F., & Neha, N. (2022). The relationship between political connections and firm performance: An empirical analysis in Europe. Finance Research Letters, 49, 103157. https://doi.org/https://doi.org/10.1016/j.frl.2022.103157
Saeed, A., Belghitar, Y., & Clark, E. (2019). Political connections and corporate performance: Evidence from Pakistan. Economics of Transition and Institutional Change, 27(4), 863-889.
Shahzad, F., Saeed, A., Asim, G. A., Qureshi, F., Rehman, I. U., & Qureshi, S. (2021). Political connections and firm performance: Further evidence using a generalised quantile regression approach. IIMB Management Review, 33(3), 205-213. https://doi.org/https://doi.org/10.1016/j.iimb.2021.08.005
Shen, C.-H., Lin, C.-Y., & Wang, Y.-C. (2015). Do strong corporate governance firms still require political connection, and vice versa? International Review of Economics & Finance, 39, 107-120. https://doi.org/https://doi.org/10.1016/j.iref.2015.06.006
Sheng, S., Zhou, K. Z., & Li, J. J. (2011). The Effects of Business and Political Ties on Firm Performance: Evidence from China. Journal of Marketing, 75(1), 1-15. https://doi.org/10.1509/jm.75.1.1
Tao, N. B., & Hutchinson, M. (2013). Corporate governance and risk management: The role of risk management and compensation committees. Journal of Contemporary Accounting & Economics, 9(1), 83-99. https://doi.org/https://doi.org/10.1016/j.jcae.2013.03.003
Utamaningsi, L. (2020). Perusahaan keluarga, koneksi politik & kinerja perusahaan. Jurnal Ilmiah Universitas Batanghari Jambi, 20(1), 68-73.
Wang, Y., Yao, C., & Kang, D. (2019). Political connections and firm performance: Evidence from government officials' site visits. Pacific-Basin Finance Journal, 57, 101021. https://doi.org/https://doi.org/10.1016/j.pacfin.2018.05.003
Wati, L. N. (2017). Board of commissioner’s effectiveness on politically connected conglomerates: Evidence from Indonesia. Pertanika Journal Social Sciences & Humanities, 25, 255-270.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Faris Afrizal, Tri Wahyu Oktavendi, Dwi Irawan
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
License
Journal of Accounting and Investment is licensed under Creative Commons Attribution Attribution-NonCommercial-NoDerivatives 4.0 International License.
