Political connections and corporate debt: Evidence from two U.S. election campaigns

Imed Chkir, Mohamed Gallali and Manara Toukabri

The Quarterly Review of Economics and Finance, 2020, vol. 75, issue C, 229-239

Abstract: In this paper, we analyze the effect of political connections on the level and cost of debt of U.S. firms. We identify politically connected firms through manually collecting data on their financial contributions to the two major U.S. political parties, the Democratic Party and the Republican Party, during the 2008 and 2012 U.S. election campaigns. Our main results indicate that during the 2009 to 2015 period, politically connected firms had a significantly higher debt ratio and experienced a lower cost of debt than did unconnected firms. Additional tests show that these results are robust to different model specifications and suggest that politically connected firms benefit from a higher indebtedness level than do unconnected firms and that their political connections give them an advantage that offsets the negative effect of high leverage on their cost of debt.

Keywords: Political connections; Election campaign; Financial leverage; Cost of debt (search for similar items in EconPapers)
JEL-codes: D72 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:75:y:2020:i:c:p:229-239

DOI: 10.1016/j.qref.2019.05.003

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