Title: The impact of political connections on the level of cash holdings: evidence from Tunisian listed firms

Authors: Nadia Ben Sedrine Goucha; Inoussa Boubacar; Nadia Loukil

Addresses: Higher College of Technology (ADMC), Abu Dhabi, United Arab Emirates; Higher Institute of Management Tunis, University of Tunis, Tunisia ' Higher College of Technology (ADMC), Abu Dhabi, United Arab Emirates ' Higher Institute of Business and Accountancy of Bizerte, University of Carthage, Tunisia; Unité de recherche Finance, Comptabilité et Fiscalité FSEG de Tunis, University of Manar, Tunisia

Abstract: In this empirical study, we examine the relationship between political connections and corporate cash policy in Tunisia. Undoubtedly, politically connected firms gain a variety of economic benefits ranging from the allocation of government contracts to favourable credit terms. In general, politically connected firms are less financially constrained and do not have an incentive to hold liquidity. Therefore, political connections exert a substitution effect on the firm's cash holdings. From the agency perspective, firms with political ties hold more cash than other firms, and their managers have access to money they can use for lucrative perk projects. Through examining the business data of several Tunisian firms 2008-2014, we review the theoretical motives for cash holding by politically connected firms and provide statistical evidence on the substitution effect of political connections on cash holdings. The result confirms a strong statistical relation between the level of cash-holding and political connection. The policy implication of our paper is that political relationships can shape corporate financial decisions.

Keywords: cash holdings; financial constrain; political connections; corporate governance.

DOI: 10.1504/IJBPM.2022.119572

International Journal of Business Performance Management, 2022 Vol.23 No.1/2, pp.135 - 153

Received: 16 Jun 2020
Accepted: 22 Nov 2020

Published online: 09 Dec 2021 *

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