Does political connection influence corporate financial decisions in unstable political environment?

Abstract

The aim of this study is to examine the impact of political connection on the cost of debt, the cost of equity and the investment level in an unstable political environment. We use a sample of 55 Tunisian listed firms during the post-revolution period (2011–2018) and we apply a generalized least square (GLS) approach to test our hypotheses. Findings highlight that political connections increase the corporate financial costs and reduce the investment level. Furthermore, in an additional analysis, we show on the one hand that political instability negatively affects the investment and affects positively the cost of debt and the cost of equity. On the other hand, we make evidence that the political instability level negatively affects the relation between the political connection and the cost of debt. The contribution is, to the best of our knowledge, the absence of studies conducted in Tunisia countries examining the impact of political connection on the financial cost and investment level in an unstable political environment such as Tunisia.