Dynamic capital structure and political patronage: the case of Malaysia
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 de...
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| Format: | Article |
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Elsevier
2014
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| Online Access: | https://eprints.nottingham.ac.uk/47146/ |
| _version_ | 1848797475647782912 |
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| author | Ebrahim, M. Shahid Girma, Sourafel Shah, M. Eskandar Williams, Jonathan |
| author_facet | Ebrahim, M. Shahid Girma, Sourafel Shah, M. Eskandar Williams, Jonathan |
| author_sort | Ebrahim, M. Shahid |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-14T20:04:28Z |
| format | Article |
| id | nottingham-47146 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T20:04:28Z |
| publishDate | 2014 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-471462020-05-04T16:42:01Z https://eprints.nottingham.ac.uk/47146/ Dynamic capital structure and political patronage: the case of Malaysia Ebrahim, M. Shahid Girma, Sourafel Shah, M. Eskandar Williams, Jonathan 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. Elsevier 2014-01-08 Article PeerReviewed Ebrahim, M. Shahid, Girma, Sourafel, Shah, M. Eskandar and Williams, Jonathan (2014) Dynamic capital structure and political patronage: the case of Malaysia. International Review of Financial Analysis, 31 . pp. 117-128. ISSN 1057-5219 Asian financial crisis Capital structure Political patronage http://www.sciencedirect.com/science/article/pii/S1057521913001658?via%3Dihub doi:10.1016/j.irfa.2013.11.004 doi:10.1016/j.irfa.2013.11.004 |
| spellingShingle | Asian financial crisis Capital structure Political patronage Ebrahim, M. Shahid Girma, Sourafel Shah, M. Eskandar Williams, Jonathan Dynamic capital structure and political patronage: the case of Malaysia |
| title | Dynamic capital structure and political patronage: the case of Malaysia |
| title_full | Dynamic capital structure and political patronage: the case of Malaysia |
| title_fullStr | Dynamic capital structure and political patronage: the case of Malaysia |
| title_full_unstemmed | Dynamic capital structure and political patronage: the case of Malaysia |
| title_short | Dynamic capital structure and political patronage: the case of Malaysia |
| title_sort | dynamic capital structure and political patronage: the case of malaysia |
| topic | Asian financial crisis Capital structure Political patronage |
| url | https://eprints.nottingham.ac.uk/47146/ https://eprints.nottingham.ac.uk/47146/ https://eprints.nottingham.ac.uk/47146/ |