Board Composition, Political Connections and Performance in State-Owned Enterprises

This paper analyses the effects of board composition on the behaviour and performance of a sample of 114 Italian local public utilities, for which information about 1630 directors during 1994-2004 has been collected. This period is particularly interesting because of the legal changes that forced many firms to alter their juridical form and allowed the entrance of private investors. We investigate whether board size and/or board composition do affect decisions about employment and how they ultimately impact on performance. Our main findings indicate that politically connected directors, representing the state or the local municipality, dominate boards of directors in the Italian public utilities in the period under investigation. Politically connected directors exert a positive and significant effect on employment, while they impact negatively on performance.