The Impact of Political Connections on Firms' Operation Performance and Financing Decisions

21st Australasian Finance and Banking Conference 2008 Paper

41 Pages Posted: 23 Aug 2008 Last revised: 29 Nov 2011

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Jean-Claude Cosset

HEC Montreal

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: November 29, 2011

Abstract

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.

Keywords: Political connections, Performance, Event study

JEL Classification: G32, G38

Suggested Citation

Boubakri, Narjess and Cosset, Jean-Claude and Saffar, Walid, The Impact of Political Connections on Firms' Operation Performance and Financing Decisions (November 29, 2011). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1242402 or http://dx.doi.org/10.2139/ssrn.1242402

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jean-Claude Cosset (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6872 (Phone)
514-340-6987 (Fax)

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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