Do different political connections affect firms' distress risk differently?
International Journal of Emerging Markets, ISSN: 1746-8817, Vol: 18, Issue: 2, Page: 376-398
2023
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Article Description
Purpose: This paper investigates how different types of corporate political connection, including government-linked investment (GLI), former officials as politically-connected directors (PCD), cronyism (CRO) and government leaders' family ties (FAM), influence financial distress risk in Malaysian firms. Design/methodology/approach: We separate political connections into four distinct categories and investigate their relationship with firm distress risk and compare the results with the one-size-fits-all treatment which is popular in the literature. We apply a battery of sensitivity test to ensure that our inferences are robust to a wide range of test specifications, endogeneity concern and sample selection methods. Findings: The empirical results show that the effect of political connections on distress risk is strongly heterogeneous. GLI and PCD firms tend to have higher distress risk via increased risk-taking behaviors because of the different incentives of the connections, while this nexus does not directly exhibit in CRO and FAM firms. Further analyses reveal that CRO and FAM firms are more likely to venture into risky international diversification, thus indirectly amplifying their distress risk. Originality/value: Our findings are novel and provide practical implications for financial analysts, investors and portfolio managers operating in the capital markets.
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