Abstract
In this article, we attempt to create a new measure of political connections specific to the Middle East and North Africa (MENA) region to examine the extent to which political patronage affects banks’ leverage and risk in this region. Principal component analysis and panel regressions are performed for a sample of banks operating in the MENA region between 2003 and 2017. The new measure incorporates different forms of political links and aspects. A comparison between two political connections variables provides evidence that our measure may outperform the use of a binary variable. Also, our results regarding the MENA region are different from previous ones, which may be explained by the failure of binary variables to capture the real impact of political connection.
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Notes
Faccio (2006) defines political connections as follows “a company is connected with a politician if one of the company’s large shareholders or top officers is a parliament member, a minister or the state head, or a closely related to a top officer.”
This is related to the work of Bliss and Gul (2012) examining the association between politically connected Malaysian firms and leverage. They conducted an analysis on a sample of firms (including those with negative equity) and found that negative equity is positively associated with leverage for politically connected firms.
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We greatly thank the anonymous referees for their careful reading of our manuscript and very useful comments and suggestions. Following the suggestions, the manuscript is strongly and significantly improved.
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Braham, R., de Peretti, C. & Belkacem, L. On the Measurement and Extent of Banks’ Political Connection in the Middle East and North Africa Region. Comp Econ Stud 64, 606–645 (2022). https://doi.org/10.1057/s41294-021-00179-8
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DOI: https://doi.org/10.1057/s41294-021-00179-8