The Strategic Role Firms’ Political Connections Play in Access to Finance: Coercion of Domestic Banks or Implicit Property Rights Protections?
نویسندگان
چکیده
What role does political influence play in access to finance? Does this role differ across markets? Using a comprehensive cross-country dataset, I characterize how and why domestic political connections affect firms’ propensities to cross-list securities abroad. Connected firms have better access to foreign capital markets; moreover, the effect of connections is magnified for firms located in countries with weak property rights. Hence, domestic political connections, at the firm-level, serve as a strategic substitute for strong national property rights protections. This paper extends the interdisciplinary literature on political influence, institutions, and finance, as its findings require us to update our understanding from existing single-country studies: (i) political connections matter not only in domestic financial markets, but also in foreign financial markets; and, (ii) the primary reason politically connected firms receive better access to finance is not government-ownership or coercion of domestic banks, but rather implicit firm-level property rights protections that reduce privileged firms’ risk premiums vis-à-vis unconnected peers.
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Appendixes for The Strategic Role Firms' Political Connections Play in Access to Finance: Coercion of Domestic Banks or Implicit Property Rights Protections?
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