Investigating the effects of market frictions on financial constraint with emphasis on political connection

Financial constraints can impede optimal investment decisions and leading to the loss of firms’ investment opportunities by reducing access to funds required for investment. Certainly, the company's appropriate response to financial constraints can be effective in preventing these negative effects. Hence the study of factors that cause financial constraints can be useful in decision making about financial constraints. This research investigating the effect of market frictions on financial constraints with emphasize on political connections and corporate governance. In order to achieve the purpose of this study and by using the systematic sampling, 159 firms selected as a final sample during 1389-1395 which in general 1113 firm-years observation are considered in analysis of hypotheses. For investigating the relationship between variables, multivariable regression is used by OLS approach. Also in order to testing hypotheses we used panel Data approach. In order to calculate market frictions two criteria of information asymmetry and stock turnover rate, and for the calculation of corporate governance, three criteria of the existence of institutional shareholders, the existence of the audit committee and the independence of the board of directors have been used. The results of the research show that there is a significant relationship between market frictions and financial constraints. The existence of political connections is effective in the relationship between stock turnover rates and financial constraints but in the relationship between information asymmetry and financial constraints has no effect.