The Impact of Political Connections on Firms’ Financing Ability: Evidence from Quantile Regression Analysis

Document Type : RESEARCH PAPER

Authors

1 Professor, Department of Economics, Faculty of Economics, Management and Administrative Sciences, University of Semnan, Semnan, Iran

2 Management & Economics Faculty of Semnan University

3 Professor, Department of Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran

Abstract

This study investigates the impact of political connections on corporate capital structure, with an emphasis on the heterogeneity across different levels of financial leverage. Using a balanced panel dataset consisting of 1,600 firm-year observations from companies listed on the Tehran Stock Exchange (TSE) during the period 1997–2021, the analysis applies a quantile regression approach to examine the effect of political connections at different leverage levels (low, medium, and high) and to capture distributional differences that cannot be identified by traditional mean-based models. Political connections are proxied by the ratio of long-term debt to total debt, reflecting preferential access to long-term credit that is often facilitated through quasi-governmental organizations and state-owned banks in Iran’s institutional context. The findings reveal that political connections have a positive and statistically significant effect on corporate leverage; however, the magnitude of this effect is not uniform across firms. The impact is stronger among firms operating at lower leverage quantiles, indicating that politically connected firms facing greater financing constraints are more likely to use their connections to obtain debt financing. In contrast, firms situated at higher leverage quantiles, which have already secured relatively stable access to credit markets, exhibit weaker sensitivity to political connections.These results indicate that political connections serve as an informal institutional substitute for weak financial systems in emerging markets, particularly for firms with limited access to external finance. From a policy perspective, the study highlights the importance of enhancing financial transparency and reducing reliance on political favoritism in credit allocation. Strengthening institutional frameworks could help mitigate unequal advantages arising from political ties and promote more efficient capital market development in Iran

Keywords

Main Subjects

References

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Stable Economy Journal
Volume 6, Issue 4 - Serial Number 20
December 2025
Pages 75-107

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