IDEAS home Printed from https://ideas.repec.org/a/eme/ijmfpp/ijmf-07-2017-0143.html
   My bibliography  Save this article

Political connections, institutional monitoring and the cost of debt: evidence from Malaysian firms

Author

Listed:
  • Chwee Ming Tee

Abstract

Purpose - The purpose of this paper is to examine the main and joint effects of politically connected firms (PCFs) and institutional monitoring on the cost of debt. Design/methodology/approach - Based on a panel data set of Malaysian politically connected and non-politically connected listed firms from 2002 till 2015, the author performs regression analysis. To address the issue of self-selection, thePCFs’ equation is estimated, following Lennoxet al.(2012) and Heckman (1979). Findings - This paper finds thatPCFsare associated with higher cost of debt. However, the positive association betweenPCFsand the cost of debt is attenuated by higher institutional ownership (IO). Further test reveals that monitoring by institutional investors is heterogeneous from the perspective of domicile. Local institutional investors are associated with lower cost of debt, particularly inPCFs, while foreign institutional investors are associated with higher cost of debt. Originality/value - The author shows that firm outcome, i.e. cost of debt in emerging markets can differ from advanced markets due to different institutional setting. Additionally, different types of political ties can produce different firm outcomes: GLCs are associated with lower cost of debt as opposed to connected firms based on personal ties. However, agency problems inPCFscan be alleviated through effective institutional monitoring. Consistent with geographical proximity theory, local institutional investors play a more effective monitoring role in Malaysian listed firms, thus lowering cost of debt. Overall, the results contribute to deeper understanding on variation in firm outcomes between emerging and advanced markets.

Suggested Citation

  • Chwee Ming Tee, 2018. "Political connections, institutional monitoring and the cost of debt: evidence from Malaysian firms," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 14(2), pages 210-229, January.
    • Handle: RePEc:eme:ijmfpp:ijmf-07-2017-0143
    DOI: 10.1108/IJMF-07-2017-0143
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJMF-07-2017-0143/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/IJMF-07-2017-0143/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/IJMF-07-2017-0143?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Khaw, Karren Lee-Hwei & Zainudin, Rozaimah & Rashid, Rasidah Mohd, 2019. "Cost of debt financing: Does political connection matter?," Emerging Markets Review, Elsevier, vol. 41(C).
    2. Tee, Chwee Ming, 2020. "Political connections and income smoothing: Evidence of institutional investors’ monitoring in Malaysia," Journal of Multinational Financial Management, Elsevier, vol. 55(C).
    3. Tee, Chwee-Ming & Wong, Wai-Yan & Hooy, Chee-Wooi, 2022. "Government power and the value of political connections: Evidence from Covid-19 economic lockdowns," Finance Research Letters, Elsevier, vol. 47(PB).
    4. Wan Nordin Wan-Hussin & Ameen Qasem & Norhani Aripin & Mohd Shazwan Mohd Ariffin, 2021. "Corporate Responsibility Disclosure, Information Environment and Analysts’ Recommendations: Evidence from Malaysia," Sustainability, MDPI, vol. 13(6), pages 1-27, March.
    5. Vidya Sukumara Panicker & Rajesh Srinivas Upadhyayula & Sumit Mitra, 2023. "Lender representatives on board of directors and internationalization in firms: an institutionalized agency perspective," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(1), pages 75-98, March.
    6. Chia, Yee-Ee & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "Liquidity and firm value in an emerging market: Nonlinearity, political connections and corporate ownership," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).
    7. Phan, Dinh Hoang Bach & Tee, Chwee Ming & Tran, Vuong Thao, 2020. "Do different types of political connections affect corporate investments? Evidence from Malaysia," Emerging Markets Review, Elsevier, vol. 42(C).
    8. Tee, Chwee Ming & Pak, Mei Sen & Lee, Mei Yee & Majid, Abdul, 2021. "CEO generational differences, risk taking and political connections: Evidence from Malaysian firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:ijmfpp:ijmf-07-2017-0143. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.