Political uncertainty and non-pricing terms of financial contract

Yun Zhu ()

Eurasian Economic Review, 2015, vol. 5, issue 1, 77-109

Abstract: The uncertainty embedded in the political environment has greatly impacts on the economy, firm level decision-making, and the cost of capital. This paper shifts the focus towards the financial contract, and specifically looks into the influence of political uncertainty on the non-pricing terms in the private debt contracts. I find, first, the political uncertainty affects the private debt market in general. Loan contracts are loaded with more stringent non-pricing terms during period of political turbulence. Second, with measurement that captures firm’s exposure to the political environment at the time of financial contract origination, I find that firms with larger political exposure have loan contract with higher possibility of collateral requirements, shorter maturities and other more stringent terms. Copyright Eurasia Business and Economics Society 2015

Keywords: Political uncertainty; Financial contact; Non-pricing term; G21; G28; G32; P16 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s40822-015-0021-x

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