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The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts

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  • Yan-Shing Chen
  • Chung-Hua Shen
  • Chih-Yung Lin

Abstract

This paper investigates whether political connections improve the access of firms to financing. We propose three hypotheses to prove that political benefits exist. First, do politically connected firms obtain preferential treatment for bank loans? Second, if these firms do obtain preferential treatment, do they benefit from government-owned banks (GOBs) more than from privately owned banks? Third, is the preferential treatment from GOBs enhanced during presidential election years? We examine these three questions by using detailed data on political connections and 69,332 individual bank-loan contracts for listed firms in Taiwan from 1991 to 2008. The empirical results generally support our hypotheses. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Yan-Shing Chen & Chung-Hua Shen & Chih-Yung Lin, 2014. "The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(3), pages 287-305, June.
    • Handle: RePEc:kap:jfsres:v:45:y:2014:i:3:p:287-305
    DOI: 10.1007/s10693-013-0167-1
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    More about this item

    Keywords

    Political connections; Bank-loan contracts; Government-owned bank; Presidential election; G21; G31; G32;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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