An Empirical Investigation into the Political Economy of the Firm in a Globalizing World Economy: How Domestic Political Connections Affect Cross-listing Choices
Abstract: This paper investigates the role domestic firm-level political connections play in determining a firm’s propensity to cross-list securities in equity markets outside its traditional home country. The paper finds that maintaining domestic political connections enables firms to access foreign capital markets across countries. It characterizes the role political connections with domestic governments play by showing that the implicit property rights protections they provide dominate any potential benefits received through domestic back-channel financial contracting arrangements resulting from government coercion of banks, suggesting the role political connections play in obtaining preferential financing terms has more to do with protections from a weak operating environment than it has to do with capital market manipulation. The weaker the domestic institutional environment is, the less likely the average firm is to cross-list. For connected firms, however, the weaker domestic property rights institutions are the more likely they are to cross-list. The paper employs, in its empirical analysis, a multi-level, cross-sectional dataset containing information spanning 46 countries (of varying institutional quality), in which 12,395 firms belong to a wide range of industries and have different political statuses (among other corporate financing characteristics) that influence their global financing behavior.