Political connections and the cost of equity capital in listed firms on Tehran Stock Exchange

Subject Areas : Financial engineering

samira hasanzadeh ¹ , Abdolreza Mohseni ²

1 - Department of Accounting, Bushehr branch, Islamic Azad University, Bushehr, Iran
2 - Department of Accounting, Bushehr branch, Islamic Azad University, Bushehr, Iran

Received: 2017-05-09 Accepted : 2017-08-07 Published : 2018-03-21

Keywords: Risk, Cost of Capital, political connections,

Abstract :

Government intervention and existence of politicians on boards may affect companies’ decision making and business trajectory. A stock market should display informational efficiency and, therefore, should appropriately reflect the value of political connections, if any value exists. This study is aimed to investigate of the relationship between political connections and the cost of equity capital in listed firms on Tehran Stock Exchange. This research in terms of method is descriptive - correlation. The sample consists of 114 companies listed on Tehran Stock Exchange for the period 2009 to 2015. Multiple linear regression analysis for hypothesis test is used. The findings show a significant negative association between political connections and the cost of equity capital. In other words, by increasing political connections on firms, cost of equity capital is reduced. These results suggest that political connectedness could represent an important determinant of the cost of equity capital