Politicians on the board of directors: Do connections affect the bottom line?

Resource dependence theory emphasizes the importance of linking firms with external contingencies that create uncertainty and interdependence. A critical source of external interdependency and uncertainty for business is government. One way to link a firm to the government is appointing ex-politicians to the board of directors. This study compares the boards of two groups of firms - those from heavily and less regulated industries - and finds the former group has more politician directors. Firms with politicians on the board are associated with better market-based performance across both groups, although the relationship is more pronounced within heavily regulated industries.