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Can Firms with Political Connections Borrow More Than Those Without? Evidence from firm-level data for Indonesia

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  • FU Jiangtao
  • SHIMAMOTO Daichi
  • TODO Yasuyuki

Abstract

Using unique firm-level data for manufacturing sectors in Indonesia, we examine how political and economic connections of firms affect their access to finance. We identify the political connections of a particular firm by whether the government owns its shares, whether politicians are on its board of directors, and whether its highly-ranked manager knows any politician personally. We find that politically connected firms are more likely to be able to borrow from state-owned banks. Moreover, being connected to the government raises the probability of being able to borrow as much as needed without any credit constraint. The financial benefit from political connections is more prominent for small and medium enterprises (SMEs) than for large firms. Furthermore, the benefit mostly comes from personal connections with politicians, rather than more formal connections as measured by government ownership or politicians on the boards of directors.

Suggested Citation

  • FU Jiangtao & SHIMAMOTO Daichi & TODO Yasuyuki, 2015. "Can Firms with Political Connections Borrow More Than Those Without? Evidence from firm-level data for Indonesia," Discussion papers 15087, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:15087
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    References listed on IDEAS

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    Cited by:

    1. repec:zib:zbmecj:v:2:y:2018:i:2:p:5-12 is not listed on IDEAS
    2. Zhang, Hongyong, 2018. "Political connections and antidumping investigations: Evidence from China," China Economic Review, Elsevier, vol. 50(C), pages 34-41.
    3. repec:eee:ecmode:v:75:y:2018:i:c:p:336-354 is not listed on IDEAS
    4. Yu Ri KIM & TODO Yasuyuki, 2019. "Are Politically Connected Firms More Likely to Export?," Discussion papers 19049, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

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