Political connections, collateral favours and debt access: some Tunisian evidence

Abstract

The purpose of the paper is to study the effect of political connections on collateralisation and debt access. The study is carried out on a sample of Tunisian firms on the period 2007-2012. In the first step, we have taken into consideration an aggregate measure of collateral which is fixed assets. Results show that only long-term debt can be covered by fixed assets owned by connected firms. Then, in a second step, we have been studying the collateral liquidity through three components: lands, buildings and machineries and equipment. The major finding is that politically connected firms were able to gain access to debt without sufficient liquid collaterals.

Does political connection influence corporate financial decisions in unstable political environment?

“…Overall, our research has important policy implications. First, although previous studies on the Tunisian context (e.g., Bencheikh & Taktak, 2017a, 2017bLassoued & Attia, 2014) have considered political connections as an additional gain, we show the dark side of the role of the political connection in the way firms make decisions and the results provide that political relationships do not always have the best strategies to help firms obtain resources. It therefore suggests that financial decision-makers should take into account the relationships established with politicians.…”

“…Regarding the Tunisian context, Bencheikh and Taktak (2017a) studied the impact of political connection on access to debt for a sample of listed Tunisian companies. Their results suggest that political relations have a positive impact on total debt.…”

“…The lack of resources prevents companies to invest in profitable projects. For this reason, companies seek to make political relations in order to help them obtain resources such as easy access to bank debts (Bencheikh & Taktak, 2017a; Boubakri et al, 2012; Braham et al, 2019; Dong et al, 2014; Khwaja & Mian, 2005), which can influence investment. In this sense, Pan and Tian (2020) predict that connected companies are more likely to seek private benefits such as bribes in order to get new projects.…”

“…According to Kariya and Kurata (2004), the generalized least squares method based on the Gauss‐Markov theory (according to the Gauss‐Markov theorem, the GLS estimator is the best linear unbiased estimator) plays an important role both theoretically and empirically. This method is used by the following studies: Bencheikh and Taktak (2017a); Boussaada (2012); Goucha et al, 2022. Standard errors are clustered at the firm level to control for heterogeneity.…”

“…This regime is known by a very high corruption rate (Lassoued & Attia, 2014). Among the forms of corruption of the family of the former regime; the detention of a public firm (Ennakel) by illegal procedures (Lassoued & Attia, 2014), the appropriation of loans granted by Tunisian banks (Bencheikh & Taktak, 2017a): “182 companies of the Ben Ali family and its allies have benefited from credits for a total of 2,367 million dinars, including 355 million dinars are classified as non‐performing loans,” (Boussaada, 2012, p. 13).…”