Rent Seeking and Corporate Finance - CUHK Business School ...

observation is otherwise from a matching firm. The results of the regressions remain similar tothose in Panel A. An exception is that the event firms’ short-term leverage does not significantlychange relative to the control firms subsequent to the events.3.4.2. Excluding the bribing firmsIt could be the case that the above results are mostly attributable to the bribing firms. Itwould be more useful to know whether the deteriorated debt financing pattern associated withthe corruption events can also be explained by lost political connection alone. For that reason werepeat the regression analysis on the connected firms only.Panel A of Table 5 reports fixed-effect regression results based on the combined sample ofthe connected firms and the non-event firms. The dummy variable Corrupt is defined as one ifthe firm is a connected firm, and zero otherwise. We find that the estimated coefficient of theinteraction term, Corrupt*Post, is negative but insignificant in the leverage regressions (Columns2 and 3). The coefficient of the interaction term is negative and significant in the debt maturityand the long-term leverage regressions (Columns 4, 5, and 6), but insignificant in the short-termdebt and trade credit regressions (Columns 6-8).*****************Table 5 here******************We repeat the regressions based on the combined sample of the connected firms and theirmatching firms. Panel B of Table 5 reports the regression results. The dummy variableCorrupt is equal to one if the observation is from a connected firm, and zero if it is from amatching firm. The results based on the matching firm benchmark are similar. Again, theregression results show significant negative effects of the corruption events on the connectedfirms’ debt maturity and long-term leverage, as revealed in the negative coefficients of theinteraction term, Corrupt*Post, in Columns 4, 5 and 6.20