7. Political Connections

Question 1

Paper investigates the value of political connections - Fisman

Firms with the highest level of dependency ..

Answer 1

Have a statistically significant stock decline after a news fact that the president might be dead

Question 2

Paper investigates the borrowing lending relationships between banks and politically connected firms - Khwaja and Mian

They found that politically connected firms:

Answer 2

• Tend to get a bigger loan
• Have a lower rate of return of loans
• Have a higher default rate
• Have a lower recovery if the firm defaults

Question 3

Paper investigates the borrowing lending relationships between banks and politically connected firms - Khwaja and Mian

When the firm is politically connected and the loan is given by a government bank ..

When the firm is politically connected, the government bank gives the loan and the firm is bigger

Answer 3

• The loan size decreases

- The loan size increases

Question 4

Main findings political connections:

Answer 4

1. Politically connected firms receive substantial preferential treatments from banks
2. They receive 45% larger loans and have 50% higher default rates
3. The treatment is mainly granted by government owned banks
4. And the treatment depends on the strength or power of the connection