Using unique firm-level data for manufacturing sectors in Indonesia, we examine how political and economic connections of firms affect their access to finance. We identify the political connections of a particular firm by whether the government owns its shares, whether politicians are on its board of directors, and whether its highly-ranked manager knows any politician personally. We find that politically connected firms are more likely to be able to borrow from state-owned banks. Moreover, being connected to the government raises the probability of being able to borrow as much as needed without any credit constraint. The financial benefit from political connections is more prominent for small and medium enterprises (SMEs) than for large firms. Furthermore, the benefit mostly comes from personal connections with politicians, rather than more formal connections as measured by government ownership or politicians on the boards of directors.

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A theory predicts that loan pricing is less sensitive to public information, such as a credit score provided by a credit information vendor, if the lender obtains more accurate private information about the credit quality of borrowers. We find that loan pricing is less sensitive to public information when a borrower is more connected with other borrowers of the lender through a supply network by using a unique database of inter-firm relationships and bankfirm relationships. This effect is significant statistically and economically after controlling for the bank-firm or inter-firm relationship characteristics and other firm characteristics.This finding provides evidence that banks make use of private information observed from their borrowers' network in their loan pricing.