 Transactional and relational approaches to political connections and the cost of debtTaufiq Arifin, Iftekhar Hasan and Rezaul Kabir Journal of Corporate Finance, 2020, vol. 65, issue C Abstract: This paper examines the economic effects of a firm's approach to developing and maintaining political connections. Specifically, we investigate whether lenders favor transactional connection as opposed to relational connection. By tracing firms in a politically volatile emerging democracy in Indonesia, we find that firms following a transactional political connection strategy experience a relatively lower cost of debt than those with a relational strategy. The effect is more pronounced for firms facing high financial distress. The finding is robust to cost of bank loans and a variety of regression methods. Overall, the evidence suggests that in times of frequently changing political regimes, firms benefit from a transactional relationship with politicians as it enables to update connection with the government in power. Relational connection is valuable for a firm only when the political regime connected with it gains power. Keywords: Political connection; Cost of debt; Cost of bank loans; Corporate governance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920302121 DOI: 10.1016/j.jcorpfin.2020.101768 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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