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The Relationship between Corporate Political Donations and Government-Controlled Banks’ Loan Rates:
Evidence from Presidential Elections of Taiwan

4. Limitations

(1) This study only focuses on corporate political donations during the presidential
elections because after the implementation of Personal Data Protection Act, information

about individual level political donations became unavailable in Taiwan. We suggest
future researchers examine the impact of other corporate political donation channels such
as parties or legislators.
(2) Firms can engage in political connections or activism in many ways. Future

research could investigate the effects of other types of political connections on corporate
debt covenants.

5. Contributions

(1) According to Lux, Crook, and Woehr (2011), corporate political activities such
as political donations and lobbying seek to persuade politicians to have pro-firm policies
and behaviors. Akey (2015) states that political donations during elections are a more

direct way to establish a political connection. In 2004, Taiwan's government enacted
the "Political Donations Act" to require politicians to declare their political donations
to the Control Yuan. The Control Yuan must collate political donations accounting
reports for inquiry and publicize them over the Internet. Thus, it provides this study
with an appropriate research setting to corporate political donation data to capture the

political connection between business and politics, demonstrating the effects of political
connections on corporate loan contracts through political donations.
(2) Prior research on political connection issues concentrates on hiring politicians as

corporate senior managers or directors (Faccio, Masulis, and McConnell, 2006; Jang and
Chang, 2011; Boubakri, Guedhami, Mishra, and Saffar, 2012; Chakravarty and Rutherford,
2017). However, corporate political donations can be used as a proxy for corporate
political activism (Ovtchinnikov, Reza, and Wu, 2020) to assess how corporate political
connections influence government policies and interventions through political donations

(Kroszner and Stratmann, 1998; Cooper, Gulen, and Ovtchinnikov, 2010; Bradley, Pantza-
lis, and Yuan, 2016; Jiang, Kumar, and Law, 2016; Wellman, 2017). This study fills the
gap in the literature by expanding on the relationship between political connections and

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