Political connection and cost of debt: Some Malaysian evidence

Bliss, Mark A. and Gul, Ferdinand A. 2012, Political connection and cost of debt: Some Malaysian evidence, Journal of banking and finance, vol. 36, no. 5, pp. 1520-1527, doi: 10.1016/j.jbankfin.2011.12.011.

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Title Political connection and cost of debt: Some Malaysian evidence
Author(s) Bliss, Mark A.
Gul, Ferdinand A.ORCID iD for Gul, Ferdinand A. orcid.org/0000-0001-8260-1472
Journal name Journal of banking and finance
Volume number 36
Issue number 5
Start page 1520
End page 1527
Total pages 8
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2012-05-01
ISSN 0378-4266
1872-6372
Keyword(s) Social Sciences
Business, Finance
Economics
Business & Economics
Political connection
Cost of debt
CEO duality
Audit committees
BOARD
CRONYISM
FIRMS
Summary This paper investigates the association between Malaysian politically connected (PCON) firms and the cost of debt. We extend previous research that finds Malaysian PCON firms are perceived as being of higher risk by the market, and by audit firms, by providing evidence that lenders also perceive these firms as being of higher risk. We also find that PCON firms have a significantly (1) higher extent of leverage, (2) higher likelihood of reporting a loss, (3) higher likelihood of having negative equity, and (4) higher likelihood of being audited by a big audit firm. We suggest that PCON firms are charged higher interest rates by lenders as a result of efficient contracting given their higher inherent risks. Additionally, we find that CEO duality present in PCON firms is perceived by lenders as being more risky, and that a higher proportion of independent directors on the audit committee mitigate this perceived risk. © 2012.
Language eng
DOI 10.1016/j.jbankfin.2011.12.011
Field of Research 150103 Financial Accounting
0102 Applied Mathematics
1502 Banking, Finance And Investment
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2012, Elsevier
Persistent URL http://hdl.handle.net/10536/DRO/DU:30080012

Document type: Journal Article
Collections: Department of Accounting
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