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Political connection and leverage: Some Malaysian evidence

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  • Bliss, Mark A.
  • Gul, Ferdinand A.

Abstract

This paper extends prior work on the linkage between politically connected (PCON) firms and capital structure in developing countries. Specifically, this paper focuses on the association between Malaysian PCON firms and leverage, and is motivated by the results of Fraser et al. (2006) who report a positive association between leverage and political patronage. Controlling for a potential misspecification in that paper, this study documents that a significant proportion (almost 12%) of the Malaysian PCON firms have negative equity, and builds on the previous paper by providing fresh evidence that market to book ratio is positively associated with leverage, and that borrowing PCON firms have significantly lower ROA compared to non-PCON firms.

Suggested Citation

  • Bliss, Mark A. & Gul, Ferdinand A., 2012. "Political connection and leverage: Some Malaysian evidence," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2344-2350.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:8:p:2344-2350
    DOI: 10.1016/j.jbankfin.2012.04.012
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    References listed on IDEAS

    as
    1. Bliss, Mark A. & Gul, Ferdinand A., 2012. "Political connection and cost of debt: Some Malaysian evidence," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1520-1527.
    2. Ferdinand A. Gul, 2006. "Auditors' Response to Political Connections and Cronyism in Malaysia," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 931-963, December.
    3. Chen, Long & Zhao, Xinlei, 2006. "On the relation between the market-to-book ratio, growth opportunity, and leverage ratio," Finance Research Letters, Elsevier, vol. 3(4), pages 253-266, December.
    4. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    5. Fraser, Donald R. & Zhang, Hao & Derashid, Chek, 2006. "Capital structure and political patronage: The case of Malaysia," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1291-1308, April.
    6. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    7. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    8. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital structure; Leverage ratio; Political connection; Market-to-book ratio;
    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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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