Impact Of Political Connections On Performance And Financing Decisions Of Public Listed Companies

2076 Words Oct 23rd, 2014 9 Pages
This paper investigates the impact of political connections on performance and financing decisions of public listed companies. There is a large body of literature documenting the impacts of political connections on the firms; however most of the studies are focused on a single country; for example Fisman (2001), Mobarak and Purbasari (2006) on Indonesia, Johnson and Mitton (2003) on Malaysia, Agrawal and Knoeber (2001) on US and Sapienza (2004) on Italy. Faccio (2006) and Faccio, Masulis and McConnell (2006) however, used an international sample and a cross country analysis approach to investigate the phenomenon of political connectivity across the globe. In this paper, the authors identify the gap in the literature to argue the existence of conflicting evidence regarding impact of political connections on firms where some studies suggest a positive effect while some others suggest a negative impact.
This research therefore adopts an event study approach on a sample of 234 firms across 23 countries to investigate the question that whether firms’ performance is increased after the establishment of political connections? The research also investigates the question that if politically connected firms take more risks in their financing decisions? Literature review generally follows a general to specific approach to formulate the following hypothesis to be tested:
Hypothesis 1: After the connection is established, the performance of politically connected firms should…
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