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Political connections and corporate debt: Evidence from two U.S. election campaigns

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  • Chkir, Imed
  • Gallali, Mohamed Imen
  • Toukabri, Manara

Abstract

In this paper, we analyze the effect of political connections on the level and cost of debt of U.S. firms. We identify politically connected firms through manually collecting data on their financial contributions to the two major U.S. political parties, the Democratic Party and the Republican Party, during the 2008 and 2012 U.S. election campaigns. Our main results indicate that during the 2009 to 2015 period, politically connected firms had a significantly higher debt ratio and experienced a lower cost of debt than did unconnected firms. Additional tests show that these results are robust to different model specifications and suggest that politically connected firms benefit from a higher indebtedness level than do unconnected firms and that their political connections give them an advantage that offsets the negative effect of high leverage on their cost of debt.

Suggested Citation

  • Chkir, Imed & Gallali, Mohamed Imen & Toukabri, Manara, 2020. "Political connections and corporate debt: Evidence from two U.S. election campaigns," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 229-239.
    • Handle: RePEc:eee:quaeco:v:75:y:2020:i:c:p:229-239
    DOI: 10.1016/j.qref.2019.05.003
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    Cited by:

    1. David Adeabah & Charles Andoh & Simplice A. Asongu & Isaac Akomea-Frimpong, 2021. "Elections, Political Connections and Cash Holdings: Evidence from Local Assemblies," Working Papers of the African Governance and Development Institute. 21/004, African Governance and Development Institute..
    2. Nan Zhang & Qiaozhuan Liang & Huiying Li & Xiao Wang, 2022. "The organizational relationship–based political connection and debt financing: Evidence from Chinese private firms," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 69-105, January.
    3. Schweizer, Denis & Walker, Thomas & Zhang, Aoran, 2023. "False hopes and blind beliefs: How political connections affect China's corporate bond market," Journal of Banking & Finance, Elsevier, vol. 151(C).
    4. Braham, Rihem & de Peretti, Christian & Belkacem, Lotfi, 2023. "Political patronage and banks’ leverage in the Middle Eastern and North African region: A new neural panel regression analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 298-306.
    5. Budi Wahyono, 2023. "Do political connections affect the market reaction to firms’ inclusion in or exclusion from the Sharia index?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(4), pages 835-854, December.

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    More about this item

    Keywords

    Political connections; Election campaign; Financial leverage; Cost of debt;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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