Corporate governance, policies, and outcomes: The appointment of military connected boards and sustainability

This paper explores whether a military connected board is an effective corporate governance mechanism, leading to sustainable corporate policies and outcomes. Appointing military-experienced directors could be a firm's good and ethical business strategy if it positively influences firms' decision making process and eventually outcomes. Relying on over 6800 firm-year observations over the period of 2000–2018 in the Thai stock market, we find military connected boards mis-utilize firms' resources, representing a weakening governance mechanism―in line with agency cost theory. Specifically, firms with military officials on their boards are highly levered, keep low cash reserves, pay low dividends, but underinvest, and historically underperformed. However, we find a positive relationship between military connected boards and firm value, measured by Tobin's Q, representing potential future growth and supporting resource dependency hypothesis. Although backward-looking analyses point toward irresponsible and unsustainable corporate policies which ultimately destroy corporate outcomes, forward-looking evidence sees a good use of military connected board members in bidding on the government's projects.