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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Capital Structure and Political Connections: Evidence from GCC Banks and the Financial Crisis
Author(s): McMillan, David
Ahmed, Fatma
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Keywords: GCC banks
political connection
Capital structure
Issue Date: 15-Sep-2021
Date Deposited: 18-Sep-2021
Citation: McMillan D & Ahmed F (2021) Capital Structure and Political Connections: Evidence from GCC Banks and the Financial Crisis. International Journal of Emerging Markets.
Abstract: Purpose This paper investigates the effect of political connections on the capital structure of banks before and after the financial crisis in Gulf Cooperation Council (GCC) countries. Design/methodology/approach This paper employs the natural experiment that the financial crisis offers and uses a difference-in-differences model to investigate the effect of political connections on capital structure. Capital structure is measured by the total debt to total assets ratio. Control variables include bank size, growth, profitability, coverage ratio and volatility. The research sample includes all the banks in the GCC from 2005 to 2016. Findings We find that political connections negatively affect banks capital structure decisions. Our results contradict the claim that politically connected firms tend to sustain higher debt due to government privilege and a lower chance of bankruptcy. Additionally, the results show that after the financial crisis, politically connected banks de-lever more compared to non-connected counterparts. This could suggest that the degree of support received by connected banks changes or that they exploit their retained earnings for financing (individual country results, however, suggest that leverage increases in Qatar). Originality/value This paper provides several contributions. First, GCC countries present an interesting and important area in which to study the relation between political connections and capital structure as it represents a mix of newer markets that seek to attract investors and foreign capital. Second, to the best of our knowledge, the present study is the first to examine the effect of the political connection and capital structure in GCC region where royal families play a significant role, especially for banks. Third, our paper is the first to link connections with leverage after the financial crisis in the banking sector. Moreover, our paper is the first to investigate this phenomenon in the GCC countries using manually collected primary data.
DOI Link: 10.1108/IJOEM-03-2020-0261
Rights: Publisher policy allows this work to be made available in this repository. Published in International Journal of Emerging Markets by Emerald. The original publication is available at: This article is deposited under the Creative Commons Attribution Non-commercial International Licence 4.0 (CC BY-NC 4.0). Any reuse is allowed in accordance with the terms outlined by the licence ( To reuse the AAM for commercial purposes, permission should be sought by contacting
Notes: Output Status: Forthcoming/Available Online
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