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The purpose of this paper is to shed light on the deleveraging impact of the anti-corruption campaign since the 18th National Congress of the Communist Party of China (CPC) on private firms with political connections, relative to those without political connections.

In this paper, taking the anti-corruption campaign employed from the end of 2012 as an exogenous shock, the authors design a quasi-experiment difference-in-difference approach to examine how the loss and failure of political connections impacts private firms’ debt financing.

The authors find that the loss and failure of political connections following the anti-corruption campaign since the 18th CPC National Congress causes the yearly new debt ratios of treatment firms with political connections to decrease, relative to those of control firms without political connections. This outcome is more pronounced for provinces with more cadres excluded in the anti-corruption campaign since the 18th CPC National Congress, which rendered politically connected firms susceptible to lose connections with central or provincial cadres. To explore the mechanism, the authors find that following the anti-corruption campaign since the 18th CPC National Congress, politically connected firms limit rent-seeking activities, whereas resource acquisition is weakened. The authors also find that the impact of the anti-corruption campaign since the 18th CPC National Congress on the debt financing of politically connected firms, relative to their counterparts, is more pronounced for groups with high levels of information asymmetry and for less explicit guarantee groups. Finally, politically connected firms are more likely to be dominated by internal funds in dealing with a loss of advantages in debt financing, compared with their counterparts without political connections.

The findings in this study suggest that the loss or failure of previous political connections following Xi’s anti-corruption campaign make politically connected firms lose the advantages in debt financing through the rent-seeking, resource acquisition, information asymmetry, implicit guarantee channels, which provide new evidence for research on the impact of the anti-corruption campaign since the 18th CPC National Congress on private firms’ financing behaviors via the loss or failure of existing political connections.

The findings in the study will have some inspiration for policy makers and entrepreneur.

This study provides new evidence on the different impacts of Xi’s anti-corruption campaign on private firm’s debt financing between politically connected and unconnected firms.

The purpose of this paper is to examine the effects of political connections surrounding an exogenous Supreme Court decision (Citizens United) that lifted long-standing restrictions on corporate political contributions.

This study examines key characteristics of politically connected firms compared to non-politically connected firms, including their market reaction to Citizens United, as well as cash holdings levels and governance characteristics before vs after the landmark decision.

The results indicate a significant negative market reaction to politically connected firms surrounding the announcement of Citizens United. Additionally, there is a significant increase in the cash holdings of politically connected firms relative to before the event and relative to non-politically connected firms. For politically connected firms, this result is exacerbated by poor corporate governance quality. Collectively, these findings are consistent with a positive association between agency costs and political connections.

This study provides novel evidence by exploiting an exogenous enhancement in the implications of political connections that accompanied the Citizens United decision. The use of this quasi-natural experiment offers an ideal research setting to extract fresh insights into the effects of corporate political connections.

The purpose of this paper is to test the political costs hypothesis in emerging economies characterized by interventionist governments and weak protection of property rights. The paper uses executives’ political connection and state control to measure firms’ political costs.

Based on a sample of Tunisian firms, univariate and multivariate analyses are used to test whether firms’ political costs have any impact on earnings management.

The empirical analysis indicates that the executives’ political connection is not directly related to earnings management. However, the interaction between executives’ political connection and the state control affects the firm’s sensitivity to political pressure and its earnings management practices. More specifically, this study provides evidence that non-connected firms and state-controlled firms attempt to use accounting policies to decrease their earnings especially during periods of the former government when they had to face high political costs. This finding is robust to comparing means of political cost indicators between different groups. Indeed, private firms with political connection enjoy a significantly lower insurance right, tax and donations and grants compared to other firms.

This study provides empirical evidence for the specific application of accounting theory in emerging economies.

Political influence may be an important criterion that will be used by auditors and investors to appreciate and detect specific manipulations of accounting earnings. Similarly, regulators should be aware of the political factors effect on discretionary behavior of managers to provide appropriate rules and standards.

The study is a pioneer in proving that a firm’s size is not always a suitable measure of its political cost. It extends the accounting literature on the role of political economy in the application of the political costs hypothesis. This hypothesis is confirmed in emerging economies by providing new and significantly measure of firms’ political costs

The purpose of this paper is to develop a capped barrier option framework to consider the politically preferential treatment for bank loans incentivized by government capital injections and calculate loan-risk sensitive insurance premiums.

This paper takes a capped barrier option approach to the market valuation of the equity of the bank and the liability of the deposit insurer. The cap demonstrates the dynamics of a politically connected borrowing firm’s asset and highlights the truncated nature of loan payoffs. The barrier addresses that default can occur at any time before the maturity date. The bank participating in a government capital injection program is required to fund the politically connected firm that has preferential access to financing.

Political connection as such makes the bank more prone to risk taking at a reduced interest margin, produces greater safety for the bank owing to government capital injections, and leads to increasing the fair deposit insurance premium. The positive effect of political connection on the deposit insurance premium, which ignores the cap and the barrier yields significant over-estimation.

The study on the politically connected borrowing firm shows that political connection is likely to affect the distressed bank’s performance, yielding the political-connection cost of a reduced bank interest margin and the political-connection benefit of a reduced bank equity risk, contributing the literature on political connection and bank bailout.

This paper investigates the market responses towards four types of politically connected (PCON) firms during two political events – general election and change of leader in Malaysia.

The authors capture the market response using cumulative abnormal return and further test it using regression analysis. The authors use a sample of 376 politically connected (PCON) and non-politically connected (non-PCON) firms from 2002 to 2013.

The market reacted negatively towards government-linked companies (GLC) during both events, showing that GLCs are negatively perceived by the market during political instability. On the other hand, the reaction of the market towards firms connected by businessmen does not differ from other firms. When compared to the findings of past literature, it shows the decreasing influence that businessmen have over the government leader. In further analysis, this study finds firms that are connected to the incoming government leader recorded a higher CAR as compared to firms connected to the outgoing government leader.

The authors’ study offers several practical implications. Knowing how the market responds to the different types of political connections might prove beneficial to investors. With this information, investors can recognize stocks with potential returns before the event date and may consider buying or selling them to capture a short-term profit. The authors’ findings may also have important implications for the management of PCON firms in terms of implementing an effective risk management and asset allocation plan to safeguard their value during political events that may disrupt the stability of their firms.

This paper provides an insight on how the markets have a different perception towards different types of politically connected firms during short-run political events. Past studies usually categorize political connection into a single category. With this separation, the authors are able to see how their individual CAR differs from other types of PCON.

The purpose of this study is to investigate how the earnings quality of politically connected firms is affected by changes in political stability and government effectiveness in a developing country.

This study uses a sample of 2,073 firm-year observations from 349 firms listed on the Indonesian Stock Exchange from 2003 to 2012 to examine how political stability and government effectiveness affect the earnings quality of politically connected firms, relative to non-politically connected firms. A two-stage model is used to address self-selection issues in the choice of firms to establish political connections.

This study finds that increased government effectiveness reduces the benefits of political connections, requiring politically connected firms to be more responsive to market pressures and resulting in higher earnings quality. However, increased political stability enhances the certainty of benefits from political connections, reducing the need for politically connected firms to respond to market pressures and resulting in lower earnings quality.

For policymakers, these results indicate that different dimensions of political and economic development can affect the incentives of firms with political connections in different ways.

This study finds that the earnings quality of politically connected firms increases as government effectiveness improves, but it decreases as the political environment becomes more stable.

The purpose of this paper is to comprehensively investigate the combined influence of a firm's political connection and diversification on corporate performance, and to explore whether firm's political connection has an impact on the diversification effect, and whether this diversification effect would promote its performance significantly or not.

The research used a regression model to explore the correlation among political connection, diversification strategy, and corporate performance. The research subjects are the private enterprises listed on Shanghai and Shenzhen Stock Exchange in China for the period 2002‐2005.

The study found that: first, for those firms without political connections, the relationship between diversification strategy and corporate performance displayed an “inverted U” curve; for firms with political connection, the relationship was a “reverse L”. Second, firms with political connections are more likely to implement a diversification strategy, especially unrelated diversification. Third, when implementing an internationalization strategy, private enterprises with political connections are more likely to expand through unrelated diversification strategy. Fourth, the diversification of the enterprises with political connection are more likely to promote the short‐term accounting performance than those without political connection, but the unrelated diversification of politically connected enterprises would have a negative impact upon its future performance, that is to damage the company's market value.

The paper expands the literature on the relationship between diversification and firm performance. It contributes to the research about the influence of political connection upon corporate performance.

In China, private equity placement (PEP) has become the most important equity refinancing method because most listed firms issue new stocks in this method. However, previous literature has not paid much attention to the impact of political connections on PEP. In this paper, the authors aim to focus on the effect of ultimate ownership types and political connections on approval, approval time, approval results and proceeds of PEP. Besides that the authors also explore the influence of different types and levels of political connections on PEP.

This study investigates the impact of ultimate ownership and political connections of private firms on the approval of PEPs. The authors obtain a final sample of 1,651 private placement events of Chinese-listed firms. To test the hypothesis that the authors developed in this paper, the authors use empirical models from the existing literature about political connections and corporate finance. They establish multiple linear regressions to test Hypothesis 1 and 3 and introduce a logit model to test Hypothesis 2.

First, this study documents that state-owned firms have significant advantages over private firms in approval procedure. Second, political connections seem to help private firms obtain approval of placements from China Securities Regulatory Commission. Third, political connections through government officers are not useful for firms to obtain refinance resources, whereas the connections of being members of Chinese People’s Political Consultative Conference and People’s Congress are the two valuable types of political connections to help private firms obtain approval.

This paper has three main contributions to the previous literature. The first contribution is to provide an evidence for the relation between political connections and PEP approval procedures. The second contribution is to provide a comparison between government officer’s connection and social title’s connection. The third contribution of this paper is to reveal the influence of non-disclosed political connection on PEP approval. All the three contributions are important for understanding the relation between political connections and firm refinancial policy.

The purpose of this paper is to examine the relationship between political connection, corporate governance and audit fees in Malaysia. Specifically, it is argued that politically connected firms are perceived to be riskier and thus require auditors to undertake greater audit efforts which in turn lead to higher audit fee. Furthermore, it is also hypothesised that the demand for better corporate governance practices requires more audit effort exert from the auditors, and the demand for higher quality work is expected to be stronger for politically connected firms as these firms are being perceived to have higher risks. This is turn results in higher fees paid to the external auditor.

This paper employs panel regression analysis. The panel data set consists of 382 non‐financial firms (1,022 observations) for three years from year 2001 to 2003.

Based on 1,022 firm‐year observations for the period of 2001 to 2003, the results reveal that politically connected firms pay higher audit fees, while firms with better governance demand a higher audit quality, leading to higher audit fees. However, there is no evidence to support that corporate governance demands for a higher quality audit especially for politically connected firms.

This paper contributes to the corporate governance‐audit fees literature by examining a large number of corporate governance variables based on the Malaysian Code on Corporate Governance. In particular, instead of using several individual governance variables such as audit committee, board structure or composition, this study condensed the large number of corporate governance variables into a single index. Furthermore, this study was conducted in Malaysia, which is a unique environment that offers clear identifiable segments based along ethnic line, whereby, politically favoured firms are generally given special privileges by the government.

The purpose of this paper is to verify existence of political connection of firms in India. For this purpose the paper first presents a theoretical model and then tests empirically the movement of stock prices during two state elections in India.

The methodology is theoretical modelling where the paper applies the standard Cournot model of oligopoly. The paper then applies correlation and Wilcoxon Paired Rank Sum test to verify the results of the theoretical model by using data from the Indian stock market during the election results.

The theoretical result states that some firms opt for political connection and some remain independent in an oligopoly. It also shows that political connection affects stock price. The empirical results find out that divergent responses of stock prices to the election results can be linked to politically connection.

The theoretical model is a simple two firm model and not generalized to n number of firms. The empirical test considers only two state elections and applies simple statistical test. The study is restricted to one country only.

The paper has practical implications for stock market. It has implications for corporate governance and for political governance. This is important since political connection of firms has emerged as an important issue in India.

The paper is important as it addresses the issue of political connection of firms, which have ramifications for social equilibrium. In a democratic country like India any nexus between political party and firms may adversely affect not only corporate governance but also political governance.

This paper looks at political connectedness theoretically in a federal structure, an issue not addressed so far in the literature. Second it considers not so discussed topic of market perception of political connection in India. The originality of the paper is that it presents a theory and also verifies the theoretical results with empirical test.