Author
Listed:
- Taufiq Arifin
- Rezaul Kabir
Abstract
Extant studies on political connections document both benefits and costs for firms. In this study, we investigate whether politically connected firms pay higher taxes than their non‐connected counterparts and thus facilitate politicians to receive political benefits. Using the presidential election in Indonesia as an exogenous event, and analysing a sample of Indonesian listed firms over the period 2007–2016, we show that politicians extract resources from firms to realise their political objectives, for example, increasing tax revenues and gaining votes. We also find that politicians pursue more rent‐seeking among firms with transactional political connections. In return for over‐payment of corporate taxes, these connected firms enjoy lower cost of borrowing and higher firm value after the election year. These results are robust to the use of different regression techniques (i.e., pooled ordinary least square and probit) and tests (i.e., endogeneity, parallel trend assumption and placebo), and support the grabbing hand hypothesis of political connections. Our study contributes to the scarce literature showing that politically connected firms help politicians by providing higher tax revenues and experience a lower cost of debt and higher firm value in exchange for providing this favour to politicians.
Suggested Citation
Taufiq Arifin & Rezaul Kabir, 2025.
"Does it cost to be politically connected? An examination of the grabbing hand hypothesis using corporate taxes,"
Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 34(1), pages 39-67, February.
Handle:
RePEc:wly:finmar:v:34:y:2025:i:1:p:39-67
DOI: 10.1111/fmii.12209
Download full text from publisher
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:wly:finmar:v:34:y:2025:i:1:p:39-67. 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: Wiley Content Delivery (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.