Political Connection and Enterprise Development (A Case Study of Nishat Business Group)

Abstract

This paper explores what role political connections of any business group of developing country have in its expansion and growth. Starting from explaining the different mediums through which business groups are related to politics, we focus to investigates a little studied but common mechanism that firms use to obtain state favors: business owners use political connections to seek influence to the top offices and commercial banks. Using Pakistan’s biggest private business group as a case study, we find that the accessibility to loans of the business group in favored political regimes is beyond the approved range. Once their favored ruling party is in power, the debt to equity ratio of these firms had increased dramatically without supportive increase in ROA and ROE. Same as, the other descriptive discussion on the strategic decisions of this group enabled us to infer about the benefits business group had availed during its favored regimes. So we conclude that the political power does influence the financing strategies of politically connected business group. Due to which their accessibility to bank loans facilitated them to expand their businesses and capture more market share.