Financial Flexibility Dependence on a Company's Political Connections: Evidence from East Asia

Student: Minakova Maria

Educational Programme: Strategic Corporate Finance (Master)

Year of Graduation: 2020

The paper investigates to what extent political connections influence the financial flexibility of a company as measured by the speed of adjustment towards its target capital structure. In order to show the statistically significant connection, we use the dataset of the financial data of companies with headquarters in China, Hong Kong, Japan and South Korea for years 2015 – 2019 along with the algorithm of political affiliation detection from the management board and board of directors’ biographies. Besides, we demonstrate that financial flexibility of East Asian companies has increased over the last five years irrespective of their affiliation. We also take federal and regional political connections into consideration and find that the effect of the latter ones is more prominent.

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