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Journal of Management and Governance

, Volume 23, Issue 4, pp 989–1006 | Cite as

Do political connections affect bank leverage? Evidence from some Middle Eastern and North African countries

  • Rihem Braham
  • Christian de PerettiEmail author
  • Lotfi Belkacem
Article
  • 51 Downloads

Abstract

This study examines the association between political patronage and bank financing decisions in a sample of 34 commercial banks operating in the Middle East and North Africa for the period 2003–2014. We collected information manually about the profiles and biographies of individuals on the boards of banks to identify which banks had political connections, which is the novel contribution of the study. Linear and nonlinear panel data analysis was used to investigate this relationship. The results reveal that politically backed banks tend to be more leveraged. The indirect effect of political patronage on leverage was not found to be large, but was significant through its interaction with profitability; that is, politically backed banks with higher profitability are positively associated with leverage. Our findings imply that the privileges resulting from political ties make banks more profitable, and that this also leads to higher leverage. In line with the related literature, we found that a strong political presence on the boards of banks can be considered an important intangible asset, and one of the factors driving bank financing decisions.

Keywords

Political patronage Leverage Indirect effect Panel data Commercial banks 

JEL Classification

G32 G38 P1 

Notes

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  • Rihem Braham
    • 1
  • Christian de Peretti
    • 2
    Email author
  • Lotfi Belkacem
    • 1
  1. 1.Laboratory Research for Economy, Management and Quantitative Finance, Institute of High Commercial StudiesUniversity of SousseSousseTunisia
  2. 2.Laboratoire de Sciences Actuarielle et Financière (EA2429), Institut de Science Financière et d’AssurancesUniversité de Lyon, Université Claude Bernard Lyon 1LyonFrance

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