Dynamic capital structure and political patronage: The case of Malaysia

Ebrahim, M.S. and Girma, S. and Shah, M.E. and Williams, J.M. (2013) Dynamic capital structure and political patronage: The case of Malaysia. International Review of Financial Analysis, 31. pp. 117-128. DOI: 10.1016/j.irfa.2013.11.004

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This paper investigates the effect of political patronage on firms' capital structure. The evidence is from Malaysia, a country characterised by relationship-capitalism, and covers 1988 to 2009. Using a system GMM estimator we find firms set leverage targets and adjust towards them following deviations at the rate of 28% per annum. Next, we construct a natural experiment and use a difference-in-differences model to investigate if the strategic financing decisions of politically patronised firms differ from non-connected firms after an exogenous shock caused by the 1997 Asian crisis. Our results unambiguously demonstrate a significant difference in the capital structure of patronised firms relative to non-connected firms following the exogenous shock but only for the crisis period 1998�2001. After 2002 the capital structures of patronised and non-connected firms are statistically equivalent.

Item Type: Article
Subjects: Research Publications
Departments: College of Business, Law, Education and Social Sciences > Bangor Business School
Date Deposited: 27 Aug 2015 02:12
Last Modified: 23 Sep 2015 03:02
ISSN: 1057-5219
URI: http://e.bangor.ac.uk/id/eprint/5292
Identification Number: DOI: 10.1016/j.irfa.2013.11.004
Publisher: Elsevier
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