THE EFFECT OF CRONYISM ON DEBT ACCESS: THE CASE OF TUNISIAN LISTED FIRMS

Cronyism occurs when the political engagement of the State becomes entangled in the economic interests of some private actors. It takes the form of favouritism, governmental subsidies and tax breaks. The ultimate objective remains the appropriation of rents. The intensity of the relationship and the profits which result from it remain relative to the context and dependent on the level of corruption. This paper addresses some of these issues by studying the case of an emerging market country characterised by a strong potential for corruption. We associate cronyism with two factors, which are the regulations of investment and economic initiative and political connections (Rajan and Zingales 1995; La Porta et al. 1998 and 2002; Rijkers et al. 2017). In the case of regulation, the government should normally grant privileges to specific sectors to support and protect them from market inefficiency. Regulation must, therefore, protect the general interest. Associated with corruption, its objective can deviate to protect private interests (Djankov et al., 2002). The means used are first restrictions which prevent national and international competitors from practising in regulated sectors. Second, there are privileges such as tax exemptions or priorities in the granting of subsidies. The objective of regulation is then to maintain or increase the benefit of the targeted sectors (Rijkers et al. 2017). The government gives a positive signal about the efficiency and solvency of regulated firms and facilitates their debt access (Bortolotti and Faccio 2009, Boubakri and Cosset 1998, Boubakri et al. 2004; Bessler et al. 2011; Graham et al. 2015). On the other hand, political connections present a considerable source of opportunism. The link which exists between political connections and regulation revolves around the role that can be played by the State in one or the other of these factors. The effect of political connections on debt access has attracted the attention of many researchers. In this respect, the study carried out by Faccio (2006) is considered to be a reference, thanks to the diversity of the contexts explored and the relevance of the results. According to the author, a firm is considered to be politically connected if one of its managers or shareholders is a member of the government. The particularity of these firms is to take advantage of all kinds of privileges that the government can offer. The author focuses, essentially, on the high level of debt, tax reductions, the acquisition of a substantial market share in the form of a concession, licenses and government contracts. Indeed, in the countries marked by corruption, political connections give access to many benefits, of which is access to bank financing. This opinion has been verified, for example, by Faccio (2006; 2010), Khawaja and Mian (2005) and Ebrahim et al. (2014). These authors show that politically connected firms benefit from corruption to increase their financial leverage. In the emerging market countries with a strong potential for corruption, the effects of regulation and political connections converge. Rijkers et al. (2017) studied the case of Tunisia and highlight the relationship between the two factors. The authors show that the businesses Abstract