Cost of debt of political connection firms in Malaysia

• Main Author: Nur Afiqah, Redzuan
• Format: Thesis
• Language: English; English
• Published: 2020
• Subjects: HG Finance; HJ Public Finance
• Online Access: https://etd.uum.edu.my/10361/1/grant%20the%20permission_s820650.pdf; https://etd.uum.edu.my/10361/2/s820650_01.pdf; https://etd.uum.edu.my/10361/

This paper investigated on three types of Politically Connected Firms (PCON firms) namely, board of directors (PCON_BOARD); Government-Linked Companies (PCON_GLC); businessmen and family members of government leaders (PCON_FAM_BUSS) to seek their association with the cost of debt. This study was materialized by employing a data set comprising PCON firms in Malaysia for the period 2003 to 2018. A total of 107 PCON firms that are listed on the Main Market of Bursa Malaysia was engaged in this study. This study employed the multivariate analysis and linear regression model to produce the results. The findings revealed that only PCON_BOARD and PCON_FAM_BUSS had negative association with the cost of debt. Specifically, the findings informed that leverage and firm size were associated with a lower cost of debt, whereas sales growth and return on assets (ROA) had no impact on the cost of debt. Despite this, PCON_GLC exhibited no association with the cost of debt. This finding was inconsistent with past studies that found otherwise, that is, GLCs’ association with a lower cost of debt. This study has enriched the existing literature concerning the relationship between PCON firms and the cost of debt. Moreover, this study has provided analysis that uncovered the status of the respective PCON firm group in relation to the cost of debt when financing asset or investment activities, and the influence of political connection in that respect. Overall, this study has provided information to lenders particularly the banks to help them make credit decisions based on the applicant firm level of risk and leverage. This study also highlighted to regulators on good corporate governance, as outlined by The Malaysian Code on Corporate Governance (MCCG) to ensure that policies and regulations are designed accordingly. This is important for improvement or enhancement of firm corporate governance and transparency.