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Do Political connections influence investment decisions? Evidence from India

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  • Ganguly, Kousik
  • Mishra, Ajay Kumar
  • Parikh, Bhavik

Abstract

The study examines the associations between political connections, cash flows, and firm investments of Indian firms. Using a sample of 1,953 listed firms on the National Stock Exchange from 2009 to 2021, we investigate how political connections benefit financially constrained firms. We use both donation and promoter channels of political connections as a proxy for political connection. Our analysis shows that politically connected firms' investment cash flow sensitivities are lower than that of politically non-connected firms. Subsequently, we observe that politically connected, financially constrained firms do not rely heavily on internal cash for investments.

Suggested Citation

  • Ganguly, Kousik & Mishra, Ajay Kumar & Parikh, Bhavik, 2023. "Do Political connections influence investment decisions? Evidence from India," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005621
    DOI: 10.1016/j.frl.2022.103385
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    More about this item

    Keywords

    Political connections; Firm investment; Investment-cash flows sensitivity; Cash flows; India;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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