The Religiosity Mechanism on Political Connections in the Indonesian Stock Exchange

Zunairoh, Liliana Inggrit Wijaya

Abstract

The purpose of this research was to prove that political connections affect idiosyncratic risk and firm performance. The uniqueness of this research was that it involved religiosity, board characteristic, and institutional ownership as moderating variables that strengthen insights about corporate governance practices in religious corridors. The analysis technique used was the linear regression method to test the hypothesis using a sample of companies at the Indonesia Stock Exchange for 2016-2019. The political connection has a significant positive effect on idiosyncratic risk but a negative effect on performance. This study raises the corporate social responsibility (CSR) variable to contrast political connections in explaining corporate risk and performance. The result is that environmental CSR is more sensitive and significant than total CSR. All moderating variables (religiosity, characteristic board, and institutional ownership) strengthen all models. Political connections and environmental CSR have a significant influence on idiosyncratic risk and performance. Environmental CSR is better in reducing idiosyncratic risk and improving performance compared with total CSR. This study did not include the pyramid structure of majority ownership, so the measurement of political connection ignored it. In the future, it can be related to the relationship between political connections and the domination of controlling shareholders in the company.

 

 

Keywords: political connection, corporate social responsibility, idiosyncratic risk, company performance, religiosity, institutional ownership.

 

 


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