Political connections and the cost of debt: Re-examining the evidence from Malaysia

Tee, Chwee Ming

doi:10.1016/j.mulfin.2018.05.003

Cited by 19 publications

(14 citation statements)

References 34 publications

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“…The higher the TMT network centrality, the higher the chance that a firm has political ties. Political ties provide access to preferential credit (Boubakri, Guedhami, Mishra, & Saffar, 2012;Chen, Wang, & Lin, 2014;Tee, 2018;Zhang, 2015). Charumilind, Kali, and Wiwattanakantang (2006) documented that firms with political connections enjoy longer maturity and fewer mortgages on credit than other firms.…”

Section: The Mediating Effects Of the Resource Channelsmentioning

confidence: 99%

“…Charumilind, Kali, and Wiwattanakantang () documented that firms with political connections enjoy longer maturity and fewer mortgages on credit than other firms. Similarly, Tee () stated that firms with political connections are linked to a lower debt cost in Malaysia. Based on this evidence, we expected that high TMT network centrality would enhance the chance of having political ties, which, in turn, reduces bond yield spreads.…”

Section: Additional Analysesmentioning

confidence: 99%

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Do social ties matter for corporate bond yield spreads? Evidence from China

Qiu

Xiao

2019

Corporate Governance

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Research Question/Issue: This paper studies the effect of top management team (TMT) network centrality on corporate bond yield spreads. In additional analyses, we examine the hierarchical structures of TMT and study which parts contribute to the decrease in bond yield spreads. We also examine the mediating roles (including informed trading probability, media coverage, political ties, financial ties, and bond ratings) and the moderating roles (including marketization and analysts following) in the correlation between TMT network centrality and corporate bond yield spreads.Research Findings/Insights: This paper finds that firms with high TMT network centrality are significantly negatively correlated with lower bond yield spreads. The findings are robust after controlling for a series of sensitivity checks and endogenous concerns. The results of the hierarchical structures show that the decrease of bond spreads is accounted for CFOs' networks and board members' networks, whereas the role of CEOs' networks is not apparent. More importantly, after controlling CEOs'

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Section: The Mediating Effects Of the Resource Channelsmentioning

confidence: 99%

Section: Additional Analysesmentioning

confidence: 99%

Do social ties matter for corporate bond yield spreads? Evidence from China

Qiu

Xiao

2019

Corporate Governance

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“…Asian Journal of Accounting and Governance 12: 65-76 (2019) ISSN 2180-3838 (http://dx.doi.org/10.17576/ AJAG-2019-12-06) In this study, we focus on the investors' perceived risk measured by COE, which is directly related to the perception of capital market players and is sensitive to changes in the firm's riskiness. While most previous literature focus on impact on firm's valuation (e.g., Faccio 2006;Faccio & Mura 2016;Fisman 2001;Goldman et al 2009;Guerra et al 2015;Hillier & Loncan 2019) and cost of capital (e.g., Al-Hadi et al 2017;Bliss & Gul 2012a;Jaffar et al 2012;Houston et al 2014;Tee 2018), fewer studies examine the impact of political connection on investors' perceived risk Pham 2019). The present study seeks to answer the following questions: (1) Is there a relationship between political connection and investors' perceived risk?…”

Section: Introductionmentioning

confidence: 95%

“…However, due to the effects of systematic exchange of favours between firms and political directors, political influence may encourage rent-seeking activities that divert firm's resources and enable politicians to achieve political and social objectives (grabbing-hand effect) (Boateng et al 2019). As such, investors could also perceive investments in PCON firms as risky, and thus increases the systematic risk of financing costs (e.g., Al-Hadi et al 2017;Bliss & Gul 2012b;Houston et al 2014;Pham 2019;Tee 2018). This paradoxical nature of the impact of political influence in business decisions is worth reconsidering by looking at the types of political connections (directorship or ownership), which may have different impacts on the benefits obtained by PCON firms.…”

Section: Introductionmentioning

confidence: 99%

“…However, cost of debt is perceive to be less risky for its relative seniority in case of liquidation and covenant protection prior to default. Studies on debt financing decisions under Malaysian setting can be reviewed from Tee (2018) and Bliss and Gul (2012a;2012b). Asian Journal of Accounting and Governance 12: 65-76 (2019) ISSN 2180-3838 (http://dx.doi.org/10.17576/ AJAG-2019-12-06) In this study, we focus on the investors' perceived risk measured by COE, which is directly related to the perception of capital market players and is sensitive to changes in the firm's riskiness.…”

Section: Introductionmentioning

confidence: 99%

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Political Connection Types and Investors’ Perceived Risk: Evidence from Malaysia

2019

AJAG

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This study examines the pervasive political influence in Malaysian businesses, specifically the investors' perceived risk of political connection. A sample of 312 firm-year observations between 2014 to 2017 reveals that politically connected Malaysian firms are less likely to be perceived as risky compared with their non-connected peers. In particular, reduction of systematic risk in cost of equity as a proxy to perceived risk is more significant for firms connected through directorship because political figures effectively channel substantial benefits in connecting firms under his/her political power. The link between types of political connections and investors' perceived risk provides a new insight and direction for research about governance factors that affect firm risks.

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Does corporate tax planning mitigate financial constraints? Evidence from China

et al. 2021

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We hypothesize that tax planning behaviour mitigates a firm's financial constraints, and this effect is more pronounced in non-state-owned enterprises and big firms compared to their counterparts. We use data for Chinese listed firms during the period 2010-2018 to test the hypotheses, based on both ordinary least squares and fixed-effect models. The regression results show that tax planning is positively and significantly associated with mitigation of financial constraints, suggesting that cash tax savings are likely to improve firms' financial slack. This effect is stronger for non-state-owned enterprises, big firms, non-political firms and firms in the eastern region of China. Further analyses reveal that, in the long run, tax planning increases firms' financial constraints, supporting Scholes-Wolfson's point of view of tax planning, that minimizing taxes is not the same as effective tax planning. These results are robust to various tests. Overall, our results suggest that minimizing tax generally produces immediate cash flow benefits and mitigates financial constraints in the short run; however, in the long run, firms should adopt sustainable financing strategies.

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Political connections and the cost of debt: Re-examining the evidence from Malaysia

Cited by 19 publications

References 34 publications

Do social ties matter for corporate bond yield spreads? Evidence from China

Do social ties matter for corporate bond yield spreads? Evidence from China

Political Connection Types and Investors’ Perceived Risk: Evidence from Malaysia

Does corporate tax planning mitigate financial constraints? Evidence from China

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