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Political Connections and Cost of Debt Financing: Empirical Evidence from China

Author

Listed:
  • Sinan Abdullah Harjan

    (School of Management, Huazhong University of Science and Technology, China,)

  • Min Teng

    (School of Management, Huazhong University of Science and Technology, China,)

  • Sayyed Sadaqat Hussain Shah

    (School of Management, Huazhong University of Science and Technology, China,)

  • Jamal Hadash Mohammed

    (College of Administration and Economy, Tikrit University. Iraq.)

Abstract

The purpose of this study is to investigate whether politically connected firms play a significant role in cost of debt financing. To emphasize this evidence, we empirically analyzed the panel data of the period 2011-2013. We found that politically connected firms have a negative and significant impact on the cost of debt financing compared to Non- politically connected firms. The reducing of cost of debt in politically connected firms is a consequence based on shared resource knowledge of Political connection directors in law, finance and government procurement contracts for favorable government policies and tax rebates. The results of this study significantly contribute to the literature through providing evidence from China.

Suggested Citation

  • Sinan Abdullah Harjan & Min Teng & Sayyed Sadaqat Hussain Shah & Jamal Hadash Mohammed, 2019. "Political Connections and Cost of Debt Financing: Empirical Evidence from China," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 212-216.
    • Handle: RePEc:eco:journ1:2019-01-26
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    References listed on IDEAS

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    Cited by:

    1. 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).
    2. Ali B Abduljabar Al Mashahedi & Jing Zhang & Sinan Harjan, 2021. "Investigating the effect of the social customer relationship management (CRM) on customers and financial performance:Evidence from Iraq," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(1), pages 235-245, January.
    3. Hayder M. Kareem Al Duhaidahawi & Jing Zhang & Mustafa S. Abdulreza & Meriem Sebai & Sinan Abdullah Harjan, 2020. "The Financial Technology (Fintech) and cybersecurity: Evidence from Iraqi banks," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(6), pages 123-133, October.

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    More about this item

    Keywords

    Politically Connected Firms; politically connected directors; 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
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • 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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