Financial Indicators Dependence on Political Connections: Evidence from Asian Region

This paper uses data from companies in three countries of the East Asian region (China, South Korea and Japan), as one of the most promising for strategic partnership, to quantitatively analyze the relationship between the fact of having political ties based on the biography of top management and the level of financial flexibility of the enterprise, expressed as the speed of adjusting the size of leverage to the managerial target the level. This approach is justified by previous theoretical and empirical work in this field. The study sample includes 3,469 active East Asian companies on the horizon of 2021-2023. The two-step Arellano-Bover/Blundell-Bond panel data model is used as analysis tools to confirm the hypotheses put forward, which allows us to obtain consistent estimates in the case of autocorrelation in the data, as well as a fixed-effects (FE) model. In the course of the study, it was possible to prove the statistical significance of the influence of the fact of the presence of political ties of the company on its adaptive ability, as well as to identify the cross-country diversification of this indicator. Based on the results obtained, a mathematical machine learning model is proposed that solves the classification problem, which will reveal the political affiliation of a particular firm. The presented algorithm is based on the implementation of CatBoost gradient boosting and has significant indicators of predictive ability. This study expands the available literature in the field under consideration, as well as adapts previously proposed methods by other authors to current realities.