The Diplomacy Discount in Global Syndicated Loans

Gene Ambrocio, Xian Gu, Iftekhar Hasan and Panagiotis Politsidis

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate whether state-to-state political ties with a global superpower affects the pricing of international syndicated bank loans. We find statistically and economically significant effects of stronger state political ties with the United States, arguably the most dominant global superpower of our times, on the pricing of global syndicated loans. A one standard deviation improvement in state political ties between the U.S. and the government of a borrower's home country is associated with 14 basis points lower loan spread. This is equivalent to a cumulative savings in loan interest payments of about 10 million USD for the average loan in our sample. The effect of political ties on loan pricing is also stronger when lead arrangers are U.S. banks, during periods in which the U.S. is engaged in armed conflicts such as in the Afghan, Iraq and Syrian wars, when the U.S. president belongs to the Republican Party, and for borrowers with better balance sheets and prior lending relationships. Notably, we find that not all firms exploit this mechanism, as cross-listed firms and firms in countries with strong institutional quality and ability to attract institutional investors are much less reliant on political ties for lowering their borrowing costs.

Keywords: Global syndicated loans; Political ties; Loan pricing (search for similar items in EconPapers)
JEL-codes: F50 G15 G21 G30 (search for similar items in EconPapers)
Date: 2020-09-08
New Economics Papers: this item is included in nep-ban and nep-ifn
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https://mpra.ub.uni-muenchen.de/110701/1/MPRA_paper_110701.pdf revised version (application/pdf)

Related works:
Journal Article: The diplomacy discount in global syndicated loans (2022)
Working Paper: The diplomacy discount in global syndicated loans (2022)
Working Paper: The Diplomacy Discount in Global Syndicated Loans (2020)
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