Impact of Corporate Political Connections on Cost of Equity: A Dynamic Panel Approach

Authors

  • Aamir Amanat University Institute of Management Sciences-PMAS-Arid Agriculture University Rawalpindi, Punjab, Pakistan
  • Ahmed Imran Hunjra University Institute of Management Sciences-PMAS-Arid Agriculture University Rawalpindi, Punjab, Pakistan
  • Salman Ali Qureshi 3Department of Business Administration, Allama Iqbal Open University, Islamabad, Pakistan
  • Muhammad Hanif Department of Mathematics & Statistics, PMAS-Arid Agriculture University Rawalpindi, Pakistan
  • Muhammad Razzaq Athar University Institute of Management Sciences-PMAS-Arid Agriculture University Rawalpindi, Punjab, Pakistan

DOI:

https://doi.org/10.51239/nrjss.v13i3.205

Keywords:

Corporate political strategies, Generalized Method of Moments, affiliated firms, the cost of equity

Abstract

We analyze the impact of corporate political connections on the cost of equity of non-financial firms listed at the Pakistan Stock Exchange. We extract data from the DataStream and Election Commission of Pakistan for the years 2001 to 2018. The Generalized Method of Moments is used for data analysis. This research finds that firms use political connections to enjoy a lower cost of equity capital. Further, firms with strong ties to political power obtain more benefits on financing cost as compared to non-connected firms. Besides, we also find that firms affiliated with a large business group enjoy a lower cost of equity than non-affiliated connected firms. The findings may be helpful for regulators to formulate suitable policies concerning the use of corporate political strategies and to assist unconnected and non-affiliated firms to access finance easily.

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Published

2021-02-02

Issue

Vol.13, No.3 (2020): July-September

Section

Articles

License

Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.

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