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Political Risk and Financial Flexibility in BRICS Countries

Using a dataset of 7757 firms in Brazil, China, India, and Russia from 2009 to 2014, this article examines the effect of political risk variables on financial flexibility and the effects of financial flexibility on future firm value, capital investment, cash holdings and the probability of default while controlling for firm-level effects and political variables. Effective representation of the majority is found to be associated with a higher level of financial flexibility. In terms of the effects of financial flexibility on firm value, results that are much stronger than previously reported are found. However, unlike previous work, the current research does not find that increased financial flexibility leads to increased capital expenditures. It is found that financially flexible firms in these countries lower their probability of default on average by about 0.6 %. It is also found that giving greater voice to the majority and greater adherence to the rule of law adds to the value of firms.

Identiferoai:union.ndltd.org:ETSU/oai:dc.etsu.edu:etsu-works-10443
Date01 November 2020
CreatorsGregory, Richard P.
PublisherDigital Commons @ East Tennessee State University
Source SetsEast Tennessee State University
Detected LanguageEnglish
Typetext
SourceETSU Faculty Works

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