The Benefits of Political Connection: Evidence from Individual Bank-Loan Contracts |
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Authors: | Yan-Shing Chen Chung-Hua Shen Chih-Yung Lin |
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Institution: | 1. Department of Finance, National Yunlin University of Science and Technology, Yunlin, Taiwan 2. Department of Finance, National Taiwan University, Taipei, Taiwan 3. Department of Finance, National Taichung University of Science and Technology, Taichung, Taiwan
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Abstract: | This paper investigates whether political connections improve the access of firms to financing. We propose three hypotheses to prove that political benefits exist. First, do politically connected firms obtain preferential treatment for bank loans? Second, if these firms do obtain preferential treatment, do they benefit from government-owned banks (GOBs) more than from privately owned banks? Third, is the preferential treatment from GOBs enhanced during presidential election years? We examine these three questions by using detailed data on political connections and 69,332 individual bank-loan contracts for listed firms in Taiwan from 1991 to 2008. The empirical results generally support our hypotheses. |
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