TY - JOUR
T1 - Dynamic capital structure under political patronage: The case of Malaysia
T2 - The case of Malaysia
AU - Ebrahim, Muhammed Shahid
AU - Girma, Sourafel
AU - Rasid, Mohamed Eskandar Shah Mohd
AU - Williams, Jonathan
PY - 2014/1
Y1 - 2014/1
N2 - 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.
AB - 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.
KW - Asian financial crisis
KW - Capital structure
KW - Political patronage
UR - http://www.scopus.com/inward/record.url?scp=84889645402&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2013.11.004
DO - 10.1016/j.irfa.2013.11.004
M3 - Article
SN - 1057-5219
VL - 31
SP - 117
EP - 128
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -