Political connections and the cost of debt: Re-examining the evidence from Malaysia

Abstract

This study extends prior work on the relationship between politically connected firms (PCFs) and the cost of debt in Malaysia. Motivated by the results of Bliss and Gul (2012), this study employs a longer and comprehensive dataset to re-examine the association between PCFs and the cost of debt. First, political connections are associated with lower cost of debt. Second, CEO duality is associated with higher cost of debt. Third, higher audit committee independence leads to lower cost of debt. Although the results are intuitive and in line with established theories and prior evidence, they differ from the findings of Bliss and Gul (2012). Overall, we provide further evidence that studies examining the influence of political connections on firm outcomes should employ a longer period of study in order to capture the dynamic changes in leadership.