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A BIT of investor protection: How Bilateral Investment Treaties impact the terms of syndicated loans

Veljko Fotak, Haekwon Lee and William Megginson

Journal of Banking & Finance, 2019, vol. 102, issue C, 138-155

Abstract: We study the impact of government expropriation risk on the terms of cross-border syndicated loans. By comparing loans by foreign lenders from countries covered by Bilateral Investment Treaties (BITs) to loans from non-covered countries, we isolate and quantify the impact of strengthening property rights against government expropriation on loans. We find that stronger property rights lead to a lower cost of debt, larger loans, larger syndicates, less collateral, and fewer covenants. Results are stronger in countries with a history of government expropriations and robust to methodologies accounting for the endogenous nature of BITs and for the simultaneous determination of loan terms. Our findings persist after the inclusion of other metrics of institutional quality, such as legal origin identifiers and an index of creditor rights.

Keywords: Property rights; Political risk; Government expropriation; Syndicated loans (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:102:y:2019:i:c:p:138-155

DOI: 10.1016/j.jbankfin.2019.01.014

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