Political connection and corporate financing decision: Evidence from Malaysia

This study investigates the impact of political connection on corporate financing decision of 292 firms listed in Bursa Malaysia from 2006-2015. Existing studies document that firms with political connection tend to have more debt because they have
close relationship with the government, which enable them to have easier access to loans. Employing a sample of trading & service sector and industrial products sector, the result of this study concludes that politically connected firms in Malaysia prefer debt to finance their operations This study also employs firm size (SIZE), firm growth (GROWTH), profitability (PROFIT), liquidity (LIQUID) and asset tangibility (TANG) to determine the other factors that influence corporate financing decision. The results show that SIZE, PROFIT and LIQUID have a negative relationship with total debt ratio (LEV). This implies that larger firms and more profitable firms less prefer debt as their sources of financing. Firms with high liquidity also tend to use their equity as internal
sources of finance instead of debt. Meanwhile, TANG has a positive relationship with LEV, indicating that Malaysian firms with greater amount of tangible assets prefer debt as their sources of financing.