Political connections and cost of debt: a meta-analysis

Abstract

Purpose

This paper aims to conduct a meta-analysis regarding the association between political connections and the cost of debt and tests for the moderating effect of the level of creditor protection on this relationship.

Design/methodology/approach

Keywords used to collect relevant empirical papers include “political connections, political ties, and political connectedness” from the one side, and “cost of loan finance, and cost of debt” from the other side. The search yields 24 published empirical papers from 2005 to 2022.

Findings

Findings show that there is a significant negative association between political connections and the cost of debt; this relationship is more pronounced only for countries characterized by a strong level of creditor protection. This moderating effect is further confirmed using meta-regression.

Originality/value

Findings are relevant for policymakers and managers in settings where relationship-based capitalism represents a prevailing feature as they highlight the important legal and institutional characteristics when considering the impact of political connections on the cost of debt. The paper also discusses some limitations inherent to this stream of research and proposes future research perspectives.

Citation

Khelil, I. (2023), "Political connections and cost of debt: a meta-analysis", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-11-2022-0413