Lathif Arafat. A

The role of political connections in moderating the impact of CEO characteristics on financial perfomance: An emprical study of energy companies in Indonesia

Introduction

The role of political connections in moderating the impact of ceo characteristics on financial perfomance: an emprical study of energy companies in indonesia. Investigate how political connections moderate CEO characteristics' impact on financial performance in Indonesian energy firms. CEO education, strengthened by political ties, boosts ROA.

Abstract

This study aims to explore the role of CEO political connections in moderating the relationship between CEO characteristics and financial performance in Indonesia's energy sector. Using a sample of 73 energy companies listed on the Indonesia Stock Exchange from 2020 to 2024, the study collects secondary data on CEO tenure, age, education, and political connections. Multiple regression analysis with the Fixed Effect model was used to test the hypotheses. The results show that CEO education has a significant positive impact on financial performance, measured by Return on Assets (ROA). CEO political connections were found to strengthen the relationship between CEO education and company financial performance. In contrast, CEO tenure and age did not have a significant effect on financial performance. These findings suggest that in Indonesia's dynamic and heavily regulated energy sector, CEO education is a crucial factor in improving financial performance, especially when supported by political connections that provide access to strategic resources. Political connections also weaken the impact of CEO age on performance but enhance the positive effect of CEO education. This study contributes to the literature by highlighting the interaction between CEO characteristics and political connections in the highly regulated energy sector in Indonesia, emphasizing the importance of adaptive leadership strategies in navigating regulatory challenges.

Review

This study presents an interesting and relevant exploration into the complex interplay between CEO characteristics, political connections, and financial performance within the context of Indonesia's energy sector. The choice of the Indonesian energy sector is particularly pertinent, given its heavy regulation and dynamic environment, making the investigation of political connections highly relevant. The study's aim to identify how political connections moderate the impact of CEO attributes on Return on Assets (ROA) is well-defined. The application of a Fixed Effect model to address potential endogeneity is a suitable methodological choice for panel data. The findings, particularly the significant positive impact of CEO education on ROA and the moderating role of political connections in strengthening this effect, offer valuable insights into the dynamics of corporate leadership in emerging markets. While the study offers a solid foundation, several aspects could benefit from further clarification and refinement. Firstly, the measurement of "CEO political connections" is critical, and the abstract lacks details on how this variable was operationalized. This is a complex construct, and its precise definition and data collection method (e.g., dummy variable for government/parliamentary experience, network analysis) are crucial for assessing the reliability and validity of the findings. Secondly, the timeframe of 2020-2024 is relatively short for a panel study utilizing a fixed-effects model, which typically benefits from a longer time series to capture sufficient within-company variation. Furthermore, this period was significantly impacted by the global COVID-19 pandemic, which had profound effects on the energy sector. It would be important to know if the study controlled for this exogenous shock or discussed its potential influence on the results. Lastly, while ROA is a standard financial performance measure, considering additional metrics relevant to a regulated energy sector, such as operational efficiency or market share growth, could provide a more comprehensive view of performance. Despite these points for consideration, this study makes a meaningful contribution to the literature on corporate governance, leadership, and political economy, particularly in the context of emerging market energy sectors. It effectively highlights the nuanced interaction between individual CEO attributes and the institutional environment shaped by political ties, underscoring the importance of adaptive leadership in navigating regulatory landscapes. The findings regarding CEO education and the leveraging of political connections offer practical implications for human resource management and strategic decision-making in similar contexts. With detailed clarification on the measurement of political connections, a discussion on the chosen timeframe's implications, and potentially a robustness check with additional performance metrics, this paper has the potential to be a significant addition to the field.

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