Investigating the Relationship Between Political connections with Value-Based Management and agency costs : Testing the Theory of Political Economy

The relations between companies and politicians is due to their multiple mutual needs.Companies are willing to establish relations with politicians because the market fails to meet the demands of business units and they can be exempt from political costs and have access to state economic and information resources. On the other hand, political parties need to be supported by companies for the government to achieve political, economic, social and cultural goals. The purpose of this study was to investigate the effect of political connections on management performance indicators based on value and agency costs. Indices of state companies and the percentage of institutional ownership of state-affiliated companies were used to measure political relations. In addition, four-point value-based criteria ranking including economic value added, cash value added, operational capital return and shareholder value added was used in this study. The data of113 companies listed on Tehran Stock Exchange during 2008-2017 were extracted and regression modeling of combined data through EVIEWS 9.5 Statistical Software was used to test the hypotheses of the study. The results of testing the first hypothesis showed that state companies have a significant positive relationship with value-based management ranking. Additionally, state-affiliated companies with institutional ownership have a significant negative relationship with value-based management ranking. The results of testing the second hypothesis indicated that state-affiliated companies with institutional ownership have a significant negative relationship with agency cost. Furthermore, there was no significant relationship between state companies and agency costs.