The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts

Yan-Shing Chen (), Chung-Hua Shen () and Chih-Yung Lin

Journal of Financial Services Research, 2014, vol. 45, issue 3, 287-305

Abstract: This paper investigates whether political connections improve the access of firms to financing. We propose three hypotheses to prove that political benefits exist. First, do politically connected firms obtain preferential treatment for bank loans? Second, if these firms do obtain preferential treatment, do they benefit from government-owned banks (GOBs) more than from privately owned banks? Third, is the preferential treatment from GOBs enhanced during presidential election years? We examine these three questions by using detailed data on political connections and 69,332 individual bank-loan contracts for listed firms in Taiwan from 1991 to 2008. The empirical results generally support our hypotheses. Copyright Springer Science+Business Media New York 2014

Keywords: Political connections; Bank-loan contracts; Government-owned bank; Presidential election; G21; G31; G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (37)

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DOI: 10.1007/s10693-013-0167-1

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