The Contingent Value of Managerial Political Ties in Private Debt Financing: Evidence from Ghana

Motivated by the paucity of research on the effect of corporate political activity on cost of debt in sub-Saharan Africa, this study examines the impact of managerial political ties on private debt financing in Ghana. Using survey data from 179 firms and drawing on institutional insights, we find that political ties are positively related to interest rates. This positive relationship is weakened by managerial financial ties, and strengthened by borrowing from private-owned banks and the appointment of Big Four audit firms. Altogether, our findings suggest that institutional lapses in emerging countries increase lenders’ perceptions of corporate governance erosion in politically connected firms, hence the high interest rates these firms pay when they borrow.