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 language | English |
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Pages (from-to) | 343-368 |
Number of pages | 26 |
Journal | Review of Quantitative Finance and Accounting |
Volume | 47 |
Issue number | 2 |
DOIs | |
State | Published - 1 Aug 2016 |
Keywords
- Endogenous switching model
- Financial constraints
- Political connections
- The ruling party