Political connections, Sharia and M&A performance : evidence from indonesia

Political connections play a significant role in creating value for firms. However, political connections are often translated as easier access to government and interpreted similar to bribery and corruption. In contrast, Islamic law prohibits bribery and corruption. Contributing to the literature about the interaction between political connections and Sharia, this study investigates the relationship between political connections, Sharia and M&A performance. We make use of M&A deals in Indonesia for the period 2010-2016. We find that while political connections can improve market reactions to M&A announcement, Sharia’s impact on M&A performance is positive but insignificant. We find further that there is a substitution relationship between Sharia and political connections. Sharia firms with political connections have poorer M&A performance than non-Sharia with political connections.

political connections

Sharia

M&A

Indonesia