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Title: Are politically connected firms less constrained in credit markets?
Authors: Rand, John
Keywords: Credit constraints
Political connections
Issue Date: 2017
Series/Report no.: UNU-WIDER Working Paper 200/2017;pp. 1 - 18
Abstract: Utilizing a panel of over 2,000 Vietnamese SMEs over a 10-year period, we analyse the importance of being politically connected on both access and cost-of-credit obtained from formal financial institutions. Controlling for unobserved time-invariant firm-level heterogeneity, productivity self-selection concerns, and access to alternative credit markets, we show that political connections decreases the likelihood of being credit-constrained by 4 percentage points. Moreover, politically connected firms accessing credit face lower cost-of-capital than non-connected SMEs not excluded from formal financial markets. However, the impact of political connections is most valuable during periods of financial distress, but less prevalent during business cycle upswings.
Appears in Collections:Economic development

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