The role of political connections in corporations: The case of a monarchical system

This thesis investigates the impact of firms’ political connections in three different aspects. The first study focuses on the impact of firms’ political connections on their profitability. It shows the importance of recognising the political ruling system of the study context when defining which firm is politically connected, as the power holders who are able to affect firms’ performance are linked to the ruling system. The study context is characterised by examining countries under monarchical rule. The first study shows that members royal families in the Gulf Country Council (GCC) are influential and powerful, whereas the powers of ministers and members of parliament are limited. Thus, firms’ connections to royal families show positive and significant effects on their performance and profitability, whereas the connection with non-royal politicians is not statistically significant. The second study focuses on the effect of firms’ political connections on their capital structure. In line with the results of the first study, this study finds that connections with non-royal politicians are not statistically significant, whereas connections with the members of the royal family result in a lower level of leverage, which is explained by royal family members reflecting national culture the study context that discouraged obtaining debts. The third study deals with the political crisis of June 2017 in the GCC region, which led to the collapse of political relations between the countries of the region and a blockade imposed on Qatar. The research found that the crisis had a greater negative impact on companies connected with members of the royal families than non-connected firms. Also, consistent with the results of the first and second studies, connections with non-royal family politicians were not statistically significant. The results demonstrate that investors and traders in the stock market place value on the connection with royal family members, as they are considered to be a source of power and a means of securing vital resources for firms.