How Do Political Connections and Corruption Shape the Banking Pool Structure in Emerging Markets?

File pdf 519KB

This paper shows that the political connections and the corruption lead the structure of firm’s banking pool. We advance the financial decision literature by stressing that the firms that have more political connections and firms that operate in the corrupted provinces are more likely to establish the main bank relationship with a government-owned bank. These firms tend to interact with a smaller number of banks and less diversified across bank ownership types. We further find that these powerful politically connected firms have a lower possibility of the main bank relationship with a government-owned bank and have a higher number of banks when they operate in the higher corrupted provinces. We formulate and test hypotheses on the financial decision of by using a unique hand-collected dataset of listed Vietnamese small and medium-sized enterprises in 2013. We address the endogeneity problems by using the fixed effects of the industry and region, including in the estimations a wide set of dependent variables and a valid instrument. The results from our robustness tests are consistent with findings of impacts of connection and corruption on the banking pool structure.

Author(s):

Hong Van Vu    
University Lille 2
France