Political regimes and the cost of debt: Evidence from Indonesia

Joni, Joni and Kuslina, Boedi Hartadi (2025) Political regimes and the cost of debt: Evidence from Indonesia. In: The 33rd Annual Conference on Pacific Basin Finance, Economics, Accounting and Management, June 13-14, 2025, Taiwan.

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Abstract

Objective - The purpose of this study is to examines the relationship political regimes and the cost of debt for companies listed on the Indonesia Stock Exchange during the leadership periods of Susilo Bambang Yudhoyono and Joko Widodo from 2010 to 2022. Design/methodology/approach - This study focuses on the political engagement through the board of commissioners and their impact on the cost of debt for companies in two different presidential leaderships in the context of emerging economy, Indonesia. After eliminating unavailable data, the final sample is 3,894 firm-year observations. In this study, we conduct moderated regression analysis to estimate the main models. Also, we include an additional endogenous test using the generalized method of moments. Findings - The results indicate during the transition of presidential leadership, there is a notable decrease in the cost of debt for these companies, attributed to their access to external resources, specifically, faster information regarding policy changes under the new leadership. This study also found that companies with politically affiliated boards of commissioners are linked to the cost of debt during leadership transitions. These findings remain robust even after conducting additional tests using the generalized method of moments to address endogeneity issues.s Implications - The findings of this study contribute to the literature on the effects of leadership regime changes in Indonesia on the cost of debt for companies, while also expanding the literature on the role of politically connected boards of commissioners in relation to the cost of debt during regime transitions and the dual board system. Furthermore, this research provides new insights for policy makers to broaden the practices of the dual-board system in Indonesia across different regimes. Originality/value - We fill the knowledge gap in the literature on the effect of firms with political connection through board of commissioners on cost of debt in two political regimes.

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Conference or Workshop Item (Paper)

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