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The culture of political connections, financing constraints, and performance: firm-level evidence from Pakistan

Author

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  • Qasim, Saira
  • Rizov, Marian
  • Zhang, Xufei

Abstract

This article examines how firm political connections affect the financing constraints of Pakistani firms, and how these are related to firm performance. Using panel data for the listed, non-financial, Pakistani firms, over the 2007–15 period, our empirical analysis shows that in Pakistan formal political connections affect significantly firm financial status: politically connected firms are less financially constrained. The results are consistent across various measures of financial status. We find, however, evidence that politically connected firms perform worse than unconnected firms. The results are robust to three different measures of firm performance. We also find some evidence that the effects of political connections on firm performance vary across groups of Pakistani firms by the level of financing constraint. Our results suggest financial resource misallocation in Pakistan consistent with the soft-budget constraint theory.

Suggested Citation

  • Qasim, Saira & Rizov, Marian & Zhang, Xufei, 2026. "The culture of political connections, financing constraints, and performance: firm-level evidence from Pakistan," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue Advance a, pages 1-27.
    • Handle: RePEc:zbw:espost:344149
    DOI: 10.1093/ser/mwag049
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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