Political connection and cost of debt: Some Malaysian evidence

By M. Bliss, Ferdinand A. Gul. 2012

372 citations recorded by the source corpus.

This paper investigates the association between Malaysian politically connected (PCON) firms and the cost of debt. We extend previous research that finds Malaysian PCON firms are perceived as being of higher risk by the market, and by audit firms, by providing evidence that lenders also perceive these firms as being of higher risk. We also find that PCON firms have a significantly (1) higher extent of leverage, (2) higher likelihood of reporting a loss, (3) higher likelihood of having negative equity, and (4) higher likelihood of being audited by a big audit firm. We suggest that PCON firms are charged higher interest rates by lenders as a result of efficient contracting given their higher inherent risks. Additionally, we find that CEO duality present in PCON firms is perceived by lenders as being more risky, and that a higher proportion of independent directors on the audit committee mitigate this perceived risk.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/a32e64eae5ab6cd096b5695101be050d3b3b73ef

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Citations in the corpus

Political connection and leverage: Some Malaysian evidence (2012, result): “This result suggests that the higher borrowing PCON firms have lower ROA than non-PCON firms, which is in line with the findings of Bliss and Gul (2012) that PCON firms are perceived by lenders as being of higher risk and, as such, are charged higher interest rates.”
Political activity and firm performance within nonmarket research: A review and international comparative assessment (2015, neutral): “However, two studies (Bliss & Gul, 2012; Fan et al., 2007) reported a negative impact of CPA on performance in Malaysia and China.”
Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms (2013, positive): “Similarly, Brown et al. (2009) use dynamic R&D models to show that young, publicly-traded, high-tech firms displayed much greater sensitivity to both internal cash flows and external equity finance than other firms from 1990 to 2004.”