Partisan conflict and corporate credit spreads: The role of political connection

Liyao Wang

Journal of Corporate Finance, 2024, vol. 84, issue C

Abstract: This paper documents the positive impact of partisan conflict on corporate credit spreads for politically connected companies and industries. The effect is both economically meaningful and statistically significant, stands under an extensive set of control variables, and is stronger for speculative-grade bonds. Several approaches are adopted to resolve endogeneity issues and further establish causality. Partisan conflict affects corporate credit spreads through a discount rate channel, increases investors’ risk aversion, and leads to higher borrowing costs and widening credit spreads. Affected companies respond by reducing debt issuance and postponing investments until the conflict subsides.

Keywords: Partisan conflict; Political connection; Corporate credit spreads (search for similar items in EconPapers)
JEL-codes: G12 G17 P16 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:84:y:2024:i:c:s092911992300175x

DOI: 10.1016/j.jcorpfin.2023.102526

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