Political connections, financial constraints, and corporate investment

Chung-Hua Shen () and Chih-Yung Lin
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Chung-Hua Shen: National Taiwan University

Review of Quantitative Finance and Accounting, 2016, vol. 47, issue 2, No 5, 343-368

Abstract: Abstract This study investigates whether firms politically connected to the ruling party can mitigate financial constraints and increase their investments. Data on Taiwan-listed companies from 1991 to 2010 are used to answer the preceding issue. Results indicate that firms connected to the ruling party that transitioned into power can mitigate financial constraints, but results do not hold for firms connected to the opposition party that transitioned out of power. Firms connected to both parties have similar results with those connected to the ruling party, but the diminishing effect is weaker than those connected to the ruling party. Results further indicate that financially constrained firms can increase their investment when they have political connections to the ruling party. Finally, firms with strong connections can reduce financial constraints more effectively.

Keywords: Political connections; Financial constraints; Endogenous switching model; The ruling party (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (13)

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DOI: 10.1007/s11156-015-0503-7

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