Can political and business connections alleviate financial constraints?

Ju-Fang Yen, Yan-Shing Chen, Chih-Yung Lin and Chih-Hong Tsai

Applied Economics Letters, 2014, vol. 21, issue 8, 550-555

Abstract: This article examines the relationship between political and business connections (PBCs) and firms' financial constraints. We proxy a firm's PBCs by whether or not the firm's CEO should hold a directorship in major trade organizations. Using an endogenous switching regression model, we find that firms with a connected CEO are less likely to be classified as financially constrained firms. Our results can provide a possible explanation why firms allow their CEOs to hold directorships in trade associations.

Date: 2014
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DOI: 10.1080/13504851.2013.875099

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