Political connections, financial constraints, and corporate investment

Chung Hua Shen, Chih-Yung Lin*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

This study investigates whether firms politically connected to the ruling party can mitigate financial constraints and increase their investments. Data on Taiwan-listed companies from 1991 to 2010 are used to answer the preceding issue. Results indicate that firms connected to the ruling party that transitioned into power can mitigate financial constraints, but results do not hold for firms connected to the opposition party that transitioned out of power. Firms connected to both parties have similar results with those connected to the ruling party, but the diminishing effect is weaker than those connected to the ruling party. Results further indicate that financially constrained firms can increase their investment when they have political connections to the ruling party. Finally, firms with strong connections can reduce financial constraints more effectively.

Original languageEnglish
Pages (from-to)343-368
Number of pages26
JournalReview of Quantitative Finance and Accounting
Volume47
Issue number2
DOIs
StatePublished - 1 Aug 2016

Keywords

  • Endogenous switching model
  • Financial constraints
  • Political connections
  • The ruling party

Fingerprint Dive into the research topics of 'Political connections, financial constraints, and corporate investment'. Together they form a unique fingerprint.

Cite this