Political uncertainty and bank loan contracting

Bill B. Francis, Iftekhar Hasan and Yun Zhu

Journal of Empirical Finance, 2014, vol. 29, issue C, 281-286

Abstract: Given that political uncertainty greatly impacts firm level investment decisions, this paper examines whether and how political uncertainty influences a firm's cost of bank loans. We create a novel measurement of individual firm's exposure to political uncertainty and find that fluctuations in the political environment impose additional costs on the loan contract. Economically, a one standard deviation increase in a firm's idiosyncratic political exposure is related to 11.90 basis points of additional spreads. In addition, related lenders have an information advantage in pricing a borrower's future political exposure, while non-related lenders do not have such an advantage. On the supply side, lenders with higher political exposure also request additional loan spreads.

Keywords: Political uncertainty; Cost of capital; Bank loan (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 P16 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (149)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:29:y:2014:i:c:p:281-286

DOI: 10.1016/j.jempfin.2014.08.004

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