Political Connections and Leverage: Firm-level Evidence from Pakistan

Abubakr Saeed · Yacine Belghitar · Ephraïm Clark

73 citations0/0 files storedManagerial and Decision Economics

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Political Influence and Corporate Strategies Corporate Finance and Governance Fiscal Policies and Political Economy

Abstract

This study investigates the impact of political connections on corporate financing decisions using a sample of listed Pakistani firms over the period 2002–2010. We find a positive and significant link between long-term debt and political connections, which reflects greater access to credit. Such preferential treatment escalates with the strength of the connected politician. Furthermore, positive effects of political connections are seen to be stronger for large firms and those affiliated with business groups. Copyright © 2014 John Wiley & Sons, Ltd.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1995What Do We Know about Capital Structure? Some Evidence from International Data 1988The Determinants of Capital Structure Choice 2005Law, finance, and economic growth in China 2006Politically Connected Firms

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