PHD, Kent State University, 2022, College of Business and Entrepreneurship, Ambassador Crawford / Department of Finance
This dissertation consists of two chapters that aim to understand the effect of borrower political connections on lenders, borrowers, and borrowers' top executives.
In the first chapter, I study the effect of borrower political connections on the loan syndication activity of the lead arrangers. Using passive political influence from a geography-based measure and active political connections from lobbying activities and election contributions, I find that, for loans to politically connected borrowers, the lead arrangers sell a larger proportion of the loan to participating lenders, are more likely to syndicate loans, and attract more participant lenders to the loan syndicate. The results are robust to matched sample and instrumental variable approach as well as to various robustness tests. Additional tests reveal that political connections are particularly valuable for opaque borrowers. And, politically connected firms experience improved creditworthiness, performance, capital expenditure, and cash flow in the next two years following loan origination. My findings are consistent with the literature on the value of political connections.
In the second chapter, I examine the effect of borrower political connections on connected firms and their CEOs following poor performance related to financial covenant violations. I find that firms with political connections have less strict covenants at loan origination, are less likely to violate financial covenants over the life of the loan even controlling for original covenant strictness, and lenders are less likely to enforce a material covenant violation following the breach of a financial covenant. In terms of the effect of political connections on a firm's executives, I find that CEOs in politically connected firms are less likely to experience turnover or forced turnover following financial covenant violations. In addition, after firms have financial covenant violations, politically connected CEOs receive less reduc (open full item for complete abstract)
Committee: Lindsay Baran (Committee Chair); Dandan Liu (Committee Member); Steven Dennis (Committee Member); Saiying Deng (Committee Member)
Subjects: Business Administration; Finance