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Dynamic capital structure and political patronage: the case of Malaysia

Ebrahim, M. Shahid; Girma, Sourafel; Shah, M. Eskandar; Williams, Jonathan

Authors

M. Shahid Ebrahim

SOURAFEL GIRMA sourafel.girma@nottingham.ac.uk
Professor of Industrial Economics

M. Eskandar Shah

Jonathan Williams



Abstract

This paper investigates the effect of political patronage on firms' capital structure. The evidence is from Malaysia, a country characterised by relationship-capitalism, and covers 1988 to 2009. Using a system GMM estimator we find firms set leverage targets and adjust towards them following deviations at the rate of 28% per annum. Next, we construct a natural experiment and use a difference-in-differences model to investigate if the strategic financing decisions of politically patronised firms differ from non-connected firms after an exogenous shock caused by the 1997 Asian crisis. Our results unambiguously demonstrate a significant difference in the capital structure of patronised firms relative to non-connected firms following the exogenous shock but only for the crisis period 1998–2001. After 2002 the capital structures of patronised and non-connected firms are statistically equivalent.

Citation

Ebrahim, M. S., Girma, S., Shah, M. E., & Williams, J. (2014). Dynamic capital structure and political patronage: the case of Malaysia. International Review of Financial Analysis, 31, https://doi.org/10.1016/j.irfa.2013.11.004

Journal Article Type Article
Acceptance Date Nov 12, 2013
Online Publication Date Nov 19, 2013
Publication Date Jan 8, 2014
Deposit Date Oct 11, 2017
Publicly Available Date Oct 11, 2017
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Electronic ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 31
DOI https://doi.org/10.1016/j.irfa.2013.11.004
Keywords Asian financial crisis, Capital structure, Political patronage
Public URL http://eprints.nottingham.ac.uk/id/eprint/47146
Publisher URL http://www.sciencedirect.com/science/article/pii/S1057521913001658?via%3Dihub
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0





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