Political Connections and Leverage: Firm‐level Evidence from Pakistan

This study investigates the impact of political connections on corporate financing decisions using a sample of listed Pakistani firms over the period 2002–2010. We find a positive and significant link between long‐term debt and political connections, which reflects greater access to credit. Such preferential treatment escalates with the strength of the connected politician. Furthermore, positive effects of political connections are seen to be stronger for large firms and those affiliated with business groups. Copyright © 2014 John Wiley & Sons, Ltd.     

Theoretical motives of corporate cash holdings and political connections: firms level evidence from a developing economy

In this paper, we revisit the theoretical motives of corporate cash holdings while concentrating on the effect of political connections. In particular, we postulate two competing hypotheses for the effects that political connections can have on cash holdings: ‘substitution effect hypothesis’ and ‘complementary effect hypothesis’. Using the data on Pakistani firms over the period 2002–2010, we find that connected firms hold significantly larger cash reserves than their non-connected counterparts, thus confirming the ‘complementary hypothesis’, which suggests that agency problems lead connected firms to accumulate large amount of cash. Further, this effect is found to be more pronounced in dictatorial as opposed to democratic regimes indicating the presence of higher degrees of political patronage in that period. Finally, we also find differences in the complementary effect based on firm characteristics. Our results suggest that the firm size and leverage have increasing effects on the cash holdings of connected firms, contrary to the mainstream literature standpoint.     

Corporate cash holdings and dividend payments: evidence from simultaneous analysis

This study explores the simultaneous relationship between corporate cash holdings and dividend policy using a large sample of around 400 non‐financial firms for the period from 1991 to 2008. The results show that cash holdings are affected by dividends, leverage, growth, size, risk, profitability, and working capital ratio. Dividend policy is affected by cash, leverage, growth, size, risk, and profit. When controlling for simultaneity, dividend payments do not appear to significantly affect cash holdings, nor do cash holdings affect dividend policy. The empirical analysis suggests that simultaneity is crucial in analyzing corporate cash holdings and dividend policy. Copyright © 2011 John Wiley & Sons, Ltd.     

CEO chairman controversy: evidence from the post financial crisis period

Review of Quantitative Finance and Accounting - Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent...     

Political connections and corporate performance: Evidence from Pakistan

This study seeks to understand how political connections affect firm performance. Using a hand‐collected dataset of Pakistani firms from 2008–2014, our firm fixed effects and Heckman two‐stage regression results show that connected firms outperform those without political ties. Moreover, we show channels through which political benefits are realized in terms of greater access to debt, lower financing costs and lower tax rates. These benefits are found to be particularly large when firms are connected to politicians who held political positions most recently and firms connected through their owners. Finally, we do not find evidence for differences in political favours across regulated and unregulated industries.     

What Happens to Nascent Entrepreneurs? An Econometric Analysis of the PSED

abstract This article follows the progress of a large and nationally representative sample of American nascent entrepreneurs – identified in the initial interview of the Panel Study of Entrepreneurial Dynamics (PSED) – over the next 12 months of the panel. We develop a novel theoretical framework based on maximisation of expected utility and the value of waiting, and estimate it to reveal which personal and economic characteristics are associated with venture start-up – and which are associated with remaining a nascent entrepreneur, or giving up entirely. The value of waiting turns out to play a key role in helping us understand what happens to nascent entrepreneurs. We discuss the implications of our results for entrepreneurs, lenders, business start-up support agencies and policy-makers.*The authors would like to thank two anonymous referees, as well as participants at Imperial College, London; Palm Springs (USASBE 2005); Babson College (BKERC 2005); and Clemson University (2004 PSED Symposium) and in particular Tom Lumpkin and Kelly Shaver for helpful comments on an earlier draft. The usual disclaimer applies.     

Pacioli's Example Entries—a Conundrum Resolved?

This paper discusses the nature of the 10 example paragraph entries at the end of Pacioli's bookkeeping treatise. It concludes that these are entries from fledgling banking operations involving one account holder and one borrower who, along with two others, has financial transactions with the account holder. The widely held assumption that they are examples of entries in the Ledger is set aside and it is concluded that, on the basis of the available evidence, they are examples of entries in a Ricordanze, a record book Pacioli described as being used to record items of this type.     

The Role of Critical Evaluation in Finance Education: Insights from an MSc Programme

This paper explores how prepared MSc in Finance students at a British university were for a research-based dissertation; how much they knew about independent research prior to starting the dissertation; and how the university assisted them during this research work. Three changes were carried out within the programme with the aim of immersing students in research practices. Students were provided with the opportunity to discuss and evaluate critically the methodologies and findings of real research studies in Finance. Thus, the study provides practical suggestions on how to support the students' experience of dissertation work. Furthermore, this paper contributes to the literature on what constitutes research in Finance and on how students can learn about standards of academic validation, by offering a subject-specific perspective on information literacy.     

CONVEXITY,MAGNIFICATION, AND TRANSLATION: THE EFFECT OF MANAGERIAL OPTION‐BASED COMPENSATION ON CORPORATE CASH HOLDINGS

Using the distinctions among the convexity, magnification, and translation effects, we identify the pertinent parameters and examine empirically the relation between cash holdings and option‐based managerial compensation. We show that changes in delta reduce the effects of magnification and convexity on managerial risk aversion. We also provide evidence that there is a negative relation between the option‐based incentives delta and vega and cash holdings. These results are robust when incentives are extended to include all executive board members and when the sample is broken down according to different risk characteristics.     

Political connections and corporate financial decision making

Review of Quantitative Finance and Accounting - This paper investigates whether and how political connections influence managerial financial decisions. Our study reveals that those firms that have...