The Impact of Political Connections on Firms' Operation Performance and Financing Decisions
American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance
Hong Kong Polytechnic University - School of Accounting and Finance
November 29, 2011
21st Australasian Finance and Banking Conference 2008 Paper
We investigate the impact that the political connections of publicly traded firms have on their performance and financing decisions. Using a long-term event study covering a sample of 234 politically connected firms headquartered in 12 developed and 11 developing countries over the period 1989 to 2003, we find that firms increase their performance and indebtedness after the establishment of a political connection. We also find that the political connection is more strongly associated with changes in leverage and operating performance for firms with closer ties to political power. Overall, our study confirms that politically connected firms gain easier access to credit and reap benefits in terms of performance from their ties with politicians.
Number of Pages in PDF File: 41
Keywords: Political connections, Performance, Event study
JEL Classification: G32, G38working papers series
Date posted: August 23, 2008 ; Last revised: November 29, 2011
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