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Can Firms with Political Connections Borrow More Than Those Without? Evidence from Firm-Level Data for Indonesia

Author

Listed:
  • Jiangtao Fu

    () (Graduate School of Economics, Waseda University)

  • Daichi Shimamoto

    () (Faculty of Political Science and Economics, Waseda University)

  • Yasuyuki Todo

    () (Faculty of Political Science and Economics, Waseda University)

Abstract

Using a unique firm-level dataset for the manufacturing sector in Indonesia, we examine how firms’ political and economic connections affect their access to finance. We determine individual firms’ political connections by identifying whether the government owns shares in the firm, whether politicians are on its board of directors, and whether highly-ranked managers personally know any politicians. 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 that a firm can receive the full loan amount it applied for. The improvement in access to finance from political connections is more prominent for SMEs than for large firms. Furthermore, such improvement mostly comes from personal connections with politicians rather than more formal connections measured by the government ownership or politicians on the board of directors.

Suggested Citation

  • Jiangtao Fu & Daichi Shimamoto & Yasuyuki Todo, 2015. "Can Firms with Political Connections Borrow More Than Those Without? Evidence from Firm-Level Data for Indonesia," Working Papers 1513, Waseda University, Faculty of Political Science and Economics.
  • Handle: RePEc:wap:wpaper:1513
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    References listed on IDEAS

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    Cited by:

    1. ZHANG Hongyong, 2017. "Political Connections and Antidumping Investigations: Evidence from China," Discussion papers 17092, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    Political Connections; Credit Constraints; Small and Medium Enterprises; Indonesia;

    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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