September 23, 2025Open Access

Do Politically Connected Board Members Influence Firms' Debt Choices? Public Debt Versus Bank Debt

MDMustapha DouchUniversity of Edinburgh FMFernando MoreiraUniversity of Edinburgh GWG. WangUniversity of Edinburgh

Key Points

Board members with strong government ties significantly influence firms' preference for public debt.
High-ranking officials and appointed politicians correlate with a stronger preference for public over bank debt.
Using difference-in-differences analyses on data from 2015-2018, varied political connections impact firms' debt decisions.
The study highlights the importance of party affiliation and geopolitical factors in determining debt choices.

Abstract

ABSTRACT Using a unique hand‐collected data set on the political connections of board members of S&P 1500 companies, we find that board members with stronger government ties are positively associated with firms' preference for public debt over bank debt. This relationship is more pronounced in firms connected to high‐ranking officials and appointed politicians. Additionally, using quarterly data from 2015 to 2018 and difference‐in‐differences (DID) analyses, we find that political ties are differently related to firms' debt choices based on different party affiliations, types of political connections, and geopolitical factors.

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