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Political Connections and Corporate Debt Structure: The Moderating Effect of India's Government‐owned Banks

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  • Rishman Jot Kaur Chahal
  • Wasim Ahmad

Abstract

In the corporate finance literature, much attention has been paid to the relationship between politicians and businesses. Our paper explores novel data to show the role of political connections on corporate debt structure in India during the period 2003–2022. We find that firms donating to the major political parties (Bharatiya Janta Party (BJP) and the Indian National Congress (INC)) have higher long‐term debt (LTD), which is mainly obtained through government‐owned banks (GOBs). These banks exhibit a positive and moderate effect on the LTD of only those firms that contribute to both the BJP and the INC, which highlights an issue of collusion between GOBs and firms, and calls into question their ethics regarding public money. Finally, politically connected firms enjoy easy access to credit through rent‐seeking and the GOB channel. These findings remain robust to several dynamic panel data specifications, sectoral control, and robustness checks.

Suggested Citation

  • Rishman Jot Kaur Chahal & Wasim Ahmad, 2026. "Political Connections and Corporate Debt Structure: The Moderating Effect of India's Government‐owned Banks," Abacus, Accounting Foundation, University of Sydney, vol. 62(2), pages 543-573, June.
    • Handle: RePEc:bla:abacus:v:62:y:2026:i:2:p:543-573
    DOI: 10.1111/abac.70002
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