The Effect of Political Connections on Financing Policies

Considering the highly competitive environment in companies, if a company cannot supply the required financing, it may encounter some problems in its activities. Companies are generally faced with two concerns on their financing conditions. The first concern is whether they have the required financial resources at a low cost in case of need while the second concern is whether they can repay their debts or not. Political connections are one of the factors which may affect the financing conditions of companies but have been less considered in research literature. For this purpose, the present study aimed at investigating the effect of political connections on financing policies. In this regard, a sample including 150 companies listed on the Tehran Stock Exchange was studied during 1390-1396. The findings obtained from testing the research hypotheses indicated that political connections has a significant positive effect on short-term debt ratio, long-term debt ratio, total debt ratio, and the cost of debt. In addition, the findings revealed that political connections has a significant negative effect on the credit rating of companies.