Democracy and credit

Manthos Delis (), Iftekhar Hasan and Steven Ongena

Journal of Financial Economics, 2020, vol. 136, issue 2, 571-596

Abstract: Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizable negative effect on loan spreads: a 1-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.

Keywords: Loan pricing; Loan spreads; Democratic institutions; Reversals (search for similar items in EconPapers)
JEL-codes: G21 G30 P16 P26 P27 P47 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:2:p:571-596

DOI: 10.1016/j.jfineco.2019.09.013

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