Political connections, bank loans and firm value

Abstract

Purpose

The purpose of this paper is to study the impact of political connections and institutional environment differences on private enterprises' acquiring bank loans, and to analyze the governance effect of bank debts and its impact on firm value.

Design/methodology/approach

Choosing private listed enterprises in China as samples, this study builds equation models and uses the three‐stage least squares estimation method to estimate these models.

Findings

The results show that: political connections influence lending policies of banks; the politically connected private enterprises could acquire more loans from banks. In poorer institutional environment, political connections can help private enterprises to acquire more bank loans; building political connections is an informal substitute mechanism for private enterprises to overcome the drawbacks of market institutions. The bank loans have governance effects on politically connected private enterprises and can increase firm value; the allocation of bank loans through political connections is efficient.

Originality/value

This study provides a meaningful perspective for understanding the impact of political connections on firm value and allocation of social resources.

Citation

Yang, J., Lian, J. and Liu, X. (2012), "Political connections, bank loans and firm value", Nankai Business Review International, Vol. 3 No. 4, pp. 376-397. https://doi.org/10.1108/20408741211283737