Title: Benefits and costs of political connections: evidence from Tunisia

Authors: Naima Lassoued; Mouna Ben Rejeb Attia

Addresses: Department of Management, Higher School of Business, University of Manouba, Campus Universitaire 2010, Tunisia ' Department of Accounting and Finance, Higher Institute of Accountancy and Entrepreneurial Administration, University of Manouba, Campus Universitaire 2010, Tunisia

Abstract: The purpose of this paper is to investigate whether political connections in Tunisia give firms advantages such us easy access to external financing and tax benefits and/or force them to spend more on employment. In addition, we show if political connections affect accounting and market performance. Using a sample of listed Tunisian firms between 2006 and 2010, we apply OLS regression to identify the effect of political connections on firms' policies and performance. We find that politically connected firms gain easier access to credit with relatively high costs compared to unconnected counterparts. They are offered more government subsidies and they enjoy better tax benefits thanks to their ties with politicians. Additionally, politically connected firms outperform their unconnected counterparts and they have higher value. Hence, political relationships seem to help firms getting access to key resources which improve their accounting and market performance without contributing to the job creation process. Our results are more robust for non-financial firms.

Keywords: political connections; performance; indebtedness; taxation; Tunisia; external financing; tax benefits; accounting; market performance; government subsidies; job creation.

DOI: 10.1504/IJAAPE.2014.064235

International Journal of Accounting, Auditing and Performance Evaluation, 2014 Vol.10 No.3, pp.299 - 325

Received: 23 May 2013
Accepted: 10 Jan 2014
Published online: 28 Aug 2014 *

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