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      Political connections, family ownership and access to bank credit

      Wellalage, Nirosha Hewa; Thrikawala, Sujani Sudhara; Ghardallou, Wafa
      Files
      Political connections, family ownership and access to bank credit.pdf
      Accepted version, 942.3Kb
      This file wil be publicly accessible from 2024-12-01
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      DOI
       10.1016/j.frl.2022.103347
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      Permanent link to Research Commons version
      https://hdl.handle.net/10289/15435
      Abstract
      This study investigates how firm-level political connections (PCs) play a role in their access to bank credit. We decompose the bank loan application process into the self-selection process of firms and the selection process of banks. Using 17,249 firms from 2018 to 2020, World Bank Enterprise surveys, we find that PCs are positively associated with the willingness of firms to apply for bank credit, the probability of credit approval, and favourable credit terms. Moreover, being a family firm raises the probability of securing credit approval by 21% and, when the firm is politically connected, the probability of obtaining secure loans without collateral is 11% greater than firms without political connections. In line with institutional theory, we argue that PCs promote efficiency by allowing private sector agents to circumvent cumbersome regulations in developing and transitional economies.
      Date
      2022-12-01
      Type
      Journal Article
      Publisher
      Elsevier BV
      Rights
      This is an author’s accepted version of an article published in the journal: Finance Research Letters. © 2022 Elsevier Inc.
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      • Management Papers [1125]
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