The Role Political Connections Play in Access to Finance: Evidence from Cross-Listing

75 Pages Posted: 11 Nov 2009 Last revised: 3 Oct 2010

Date Written: October 1, 2010

Abstract

What role does political influence play in access to finance? Using a comprehensive cross-country dataset, I characterize how and why domestic political connections affect firms’ ability to access all types of finance — exploiting firms’ cross-listing activity as a source of empirical identification. The results extend our understanding from recent single-country studies focused exclusively on domestic bank finance. First, political influence improves firms’ access to finance beyond domestic (bank) debt markets — political connections also improve access to foreign, equity finance. Second, the mechanism through which political influence works to improve access to finance is broader than political coercion of local bankers — political connections function as a firm-level substitute for strong national property rights, reducing connected firms risk premiums vis-à-vis unconnected peers.

Keywords: Cross-listing, Political Connections, Non-Market Strategy, International Finance, Corporate Finance, Corporate Governance, Economic Institutions, Property Rights

JEL Classification: G3, G15, K0, P48, L1, L2, O16, F2, F3, F5, D7

Suggested Citation

Richter, Brian Kelleher, The Role Political Connections Play in Access to Finance: Evidence from Cross-Listing (October 1, 2010). Available at SSRN: https://ssrn.com/abstract=1503542 or http://dx.doi.org/10.2139/ssrn.1503542
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