TY  - JOUR
AB  - Purpose The purpose of this paper is to examine the main and joint effects of politically connected firms (PCFs) and institutional monitoring on the cost of debt.Design/methodology/approach Based on a panel data set of Malaysian politically connected and non-politically connected listed firms from 2002 till 2015, the author performs regression analysis. To address the issue of self-selection, the PCFs’ equation is estimated, following Lennox et al. (2012) and Heckman (1979).Findings This paper finds that PCFs are associated with higher cost of debt. However, the positive association between PCFs and the cost of debt is attenuated by higher institutional ownership (IO). Further test reveals that monitoring by institutional investors is heterogeneous from the perspective of domicile. Local institutional investors are associated with lower cost of debt, particularly in PCFs, while foreign institutional investors are associated with higher cost of debt.Originality/value The author shows that firm outcome, i.e. cost of debt in emerging markets can differ from advanced markets due to different institutional setting. Additionally, different types of political ties can produce different firm outcomes: GLCs are associated with lower cost of debt as opposed to connected firms based on personal ties. However, agency problems in PCFs can be alleviated through effective institutional monitoring. Consistent with geographical proximity theory, local institutional investors play a more effective monitoring role in Malaysian listed firms, thus lowering cost of debt. Overall, the results contribute to deeper understanding on variation in firm outcomes between emerging and advanced markets.
VL  - 14
IS  - 2
SN  - 1743-9132
DO  - 10.1108/IJMF-07-2017-0143
UR  - https://doi.org/10.1108/IJMF-07-2017-0143
AU  - Tee Chwee Ming
PY  - 2018
Y1  - 2018/01/01
TI  - Political connections, institutional monitoring and the cost of debt: evidence from Malaysian firms
T2  - International Journal of Managerial Finance
PB  - Emerald Publishing Limited
SP  - 210
EP  - 229
Y2  - 2024/04/19
ER  -