Political Connection and Leverage: Some Malaysian Evidence

Posted: 31 Aug 2018

See all articles by Mark Bliss

Mark Bliss

Hong Kong Polytechnic University

Ferdinand A. Gul

Deakin University - Department of Accounting

Date Written: August 23, 2012

Abstract

This paper extends prior work on the linkage between politically connected (PCON) firms and capital structure in developing countries. Specifically, this paper focuses on the association between Malaysian PCON firms and leverage, and is motivated by the results of Fraser et al. (2006) who report a positive association between leverage and political patronage. Controlling for a potential misspecification in that paper, this study documents that a significant proportion (almost 12%) of the Malaysian PCON firms have negative equity, and builds on the previous paper by providing fresh evidence that market to book ratio is positively associated with leverage, and that borrowing PCON firms have significantly lower ROA compared to non-PCON firms.

Keywords: Capital structure, Leverage ratio, Political connection, Market-to-book ratio

JEL Classification: G32, G38

Suggested Citation

Bliss, Mark and Gul, Ferdinand A., Political Connection and Leverage: Some Malaysian Evidence (August 23, 2012). Journal of Banking and Finance, Vol. 36, 2012, Available at SSRN: https://ssrn.com/abstract=3237263

Mark Bliss (Contact Author)

Hong Kong Polytechnic University ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon
China
852 6273 7022 (Phone)
852 2356 9550 (Fax)

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

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