The impact of political connection and risk committee on corporate financial performance: evidence from financial firms in Malaysia Redhwan Aldhamari, Mohamad Naimi Mohamad Nor, Mourad Boudiab and Abdulsalam Mas’ud Abstract Purpose – This study aims to examine the association between the effectiveness of risk committee (RC) and firms’ performance in Malaysian context. It also explores whether political connection has an impact on the relationship. Design/methodology/approach – This study, using a principle components analysis, derives a factor score for RC attributes to proxy the effectiveness of RC. It also uses both accounting and market performance to measure the company performance. Findings – Using a sample of financial firms from 2004 to 2018, this study finds that both accounting and market performance are higher for firms with an effective RC. It also finds that the effectiveness of RC in monitoring and management of risks is more pronounced for politically connected firms (PCFs). In further tests, the paper finds that RC attributes (i.e. RC independence, qualification and gender) are positively and significantly associated with accounting performance, while those of RC existence and overlap are positively and significantly related to market performance. The study also finds that RC size (RC diligence) has a positive (negative) impact on financial firms accounting and market performance. The further analysis also shows that PCFs with a separate as well as larger RCs experience both higher accounting and market performance. This study’s results are robust for concerns of endogeneity. Practical implications – The findings of this study resolve the ongoing debates surrounding political connection by suggesting financial firms not to have politically connected board members as doing so may deteriorate their performance. This study’s results are also useful for investors, regulators and policymakers. Originality/value – To the best of the authors’ knowledge, this study, for the first time, introduces on the interaction term between the effectiveness of RCs and political connection to empirically explore how an effective RC may reduce the potential risk of political ties. As such, this study adds to the literature and sheds light on an aspect of risk (i.e. risk stems from establishing close link with the government) that is growing in importance. Keywords Political connection, Corporate performance, Financial institutions, Risk committee Paper type Research paper 1. Introduction The financial crisis, along with unexpected corporate failures and scandals, such as Enron, WorldCom, Parmalat, Bear Stearns, Citigroup, Lehman Brothers and Dexia in the West, and Transmile, Megan Media and Oilcorp in Malaysia, has raised awareness on the importance of corporate governance mechanisms to monitor various types of risks (e.g. credit risk, Redhwan Aldhamari, Mohamad Naimi Mohamad Nor and Mourad Boudiab are all based at the Tunku Puteri Intan Safinaz School of Accountancy, Universiti Utara Malaysia, Sintok, Malaysia. Abdulsalam Mas’ud is based at the Department of Taxation, Federal University Dutse, Dutse, Nigeria. JEL classification – M41, G21, G28, G32, G34 Received 3 April 2020 Revised 3 June 2020 6 August 2020 Accepted 13 August 2020 The authors wish to thank Hamid Al-Wesabi for his valuable suggestion in the analysis process and the anonymous reviewers of this paper. The authors report no conflicts of interest and they take responsibility for any errors contained in this paper. DOI 10.1108/CG-04-2020-0122 © Emerald Publishing Limited, ISSN 1472-0701 j CORPORATE GOVERNANCE j