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Study of Political Tie, Its Influence on Bank Credit Granting Decisions in Indonesia

Study of Political Tie, Its Influence on Bank Credit Granting Decisions in Indonesia

Title : A Study of Political Ties, Their Influence on Bank Credit Granting Decisions in Indonesia
Author(s) :  Elisa Tjondro
Faculty of Economics, Petra Christian University, Surabaya
Basuki
Faculty of Economics and Business, Universitas Airlangga , Surabaya
DOI :  https://doi.org/10.9744/jak.14.2.116-134

 

Abstract
This study uses bank loan data to examine the effect of (political tie) between the company and the government to on the assessment of companies' financial leverage and profitability in the bank lending decisions in Indonesia. The numbers of samples are 1465 observations. This study uses moderated regression analysis (MRA). The study finds that a political tie affects corporate profitability assessment in bank lending decisions. Firms with lower profitability receive larger bank loans because of their political tie (rent-seeking hypothesis). However, this study indicates that a political tie does not affect the assessment of financial leverage in banks' lending decisions. This finding also supports Faccio (2010), Fisman (2001), and Backman (2001). Indonesia condition which has a weak institutional regulation and high information asymmetry is beneficial for companies that have a political tie. This leads to more trusted political ties as an indicator of profitability.

 

Keywords: 

Political tie, financial leverage, profitability, bank loans, rent-seeking hypothesis, politically exposed person, state-owned enterprises (SOEs).
Source: https://jurnalakuntansi.petra.ac.id/index.php/aku/issue/view/3159

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