Cost of Debt and Political Connection of Firms in Vietnam

Authors

  • Thi Le Ha Nguyen International University, School of Business Administration, Quarter 6, Linh Trung Ward, Thu Duc District, Ho Chi Minh City, Vietnam
  • Huynh Chau Gia Bao International University, School of Business Administration, Quarter 6, Linh Trung Ward, Thu Duc District, Ho Chi Minh City, Vietnam, Vietnam National University, Ho Chi Minh City, Vietnam

Keywords:

Cost of Debt, Political Connection, Politically Connected Firm, Emerging Economy

Abstract

The purpose of the paper is to present a proposed study on the relationship between the interest rate charged on debt and political connection of firms in Vietnam. Data on cost of debt and political connection from 600 Vietnamese public firms over a period from 2016 to 2018 is gathered to examine the research hypotheses. The present study extends the previous research that finds politically connected firms (PCON) are generally considered as higher risk than that of non-PCON firms by both the market and audit firms in emerging economy, by providing the evidence in Vietnam that lenders also view these firms as higher risk.

References

. Johnson, S., Mitton, T. Cronyism and capital controls: evidence from Malaysia. Journal of Finance Economics 67 (2), 351–382, 2003.

. Fraser, D.R., Zhang, H., Derashid, C. Capital structure and political patronage: the case of Malaysia. Journal of Banking and Finance 30,1291–1308, 2006.

. Gul, F.A. Auditor’s response to political connections and cronyism in Malaysia. Journal of Accounting Research 44 (5), 931–963, 2006.

. Faccio, M., Lang, L.H.P., Young, L. Dividend and expropriation. American Economic Review (91), 54–78, 2001.

. Pittman, J.A., Fortin, S. Auditor choice and the cost of debt capital for newly public firms. Journal of Accounting and Economics 37, 113–136, 2004.

. Francis, J.R., Khurana, I.K., Pereira, R. Disclosure incentives and effects on cost of capital around the world. The Accounting Review 80 (4), 1125–1162, 2005.

. Gul F. A. and Bliss M. A. Political connection and cost of debt: Some Malaysian evidence. Journal of Banking & Finance 36(5), 2012.

. North, D. Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge. 1990.

. Olson, M. Dictatorship, democracy, and development. American Economic Review 78, 567–576, 1993.

. Chen, C. R. and Steiner T. L. Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy. The Financial Review 34, 119-136, 1999.

. Faccio, M. Politically connected firms. The American Economic Review 96 (1), 369–386, 2006.

. Petersen, M.A. and Rajan, R.G. The benefits of lending relationships: evidence from small business data. Journal of Finance 49, 3–37, 1994.

. Qiu, J.and Yu, F. The market for corporate control and the cost of debt. Journal of Financial Economics 93, 505–524, 2009.

. Diamond, D. W. Reputation acquisition in debt markets Journal of political economy 97 (4), 828-862, 1989.

. Carey, M., Prowse, S., Rea, J., Udell, G. The economics of private placements: a new look. Financial Markets Institutions and Instruments 2, 1–66, 1993.

Downloads

Published

2020-01-30

How to Cite

Nguyen, T. L. H., & Bao, H. C. G. . (2020). Cost of Debt and Political Connection of Firms in Vietnam. International Journal of Sciences: Basic and Applied Research (IJSBAR), 49(2), 15–23. Retrieved from https://gssrr.org/index.php/JournalOfBasicAndApplied/article/view/10716

Issue

Vol. 49 No. 2 (2020)

Section

Articles

License

Authors who submit papers with this journal agree to the following terms.