Essay On Political Connection

2940 Words12 Pages

CLC 9005 FINANCE AND POLITICS

TOPIC: Political Connection and
Firm Valuation

Wong Ching Yu, Sidney (4099346)
So Chun Shing, Jason (4148848)
Yip Shan Shan, Sarah (4189414)

Political Connection exits in both developing countries and developed countries that the relationship between the government and private enterprises or public cooperation does matter. Part of them would use this kind of relationship wisely to attain their aims and objectives but at the same time, the political connection of firms is an important issue not just for corporate governance of an individual firm but from macroeconomic standpoint for the governance of the society as a whole.
The firm valuation might vary with the degree of intimacy towards the government official or organization. Also, some partisanship in different countries can be a main factor affects their firm …show more content…

Political connections brings positive impact to the company as it is believed to be a precious resources of many firms, particularly to the business sectors that involved in more government regulation.
1. Easier Loan accession
Political connections have a positively correlation with the bank loan, those firms with high political connection would have the preferential treatment to access the loan from the central bank. Therefore, firms having better corporate governance would also have more different sources of finance.
2. Gain favorable treatment from government regulation and legal treatment
Firm with high political connection can affects the effectiveness of laws and regulations, they will have more say during the formulation of rules and the voice of high politically connected firms would be more likely to be took into account while having decision making process. Therefore, the regulation would be more favorable to the firms with high political connection and so as to protect and safeguard their investors.
3. Able to enjoy a lower cost of equity

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