The diplomacy discount in global syndicated loans. (February 2022)

• Record Type: Journal Article
• Authors: Ambrocio, Gene; Gu, Xian; Hasan, Iftekhar; Politsidis, Panagiotis N.
• Is Part Of: Journal of international money and finance. Volume 120(2022)
• Publication Date: 2022-02
• Subjects: Global syndicated loans -- Loan pricing -- Political ties -- International relations; G15 -- G21 -- G30 -- F50; International finance -- Periodicals; Foreign exchange -- Periodicals; Finances internationales -- Périodiques; Change -- Périodiques; Foreign exchange; International finance; Periodicals; 332.04205
• DOI: 10.1016/j.jimonfin.2021.102542
• Languages: English
• ISSNs: 0261-5606

Abstract

Abstract: This paper investigates whether state-to-state political ties with the United States affect the pricing of global syndicated loans. We find that 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 a 14.7 basis points lower loan spread, shaving off about 11.8 million USD in interest payments over the duration of the average loan for borrowers. Results also show that the effect of political ties is stronger for narrower and more concentrated loan syndicates, when lead arrangers are U.S. banks, during periods in which the U.S. is engaged in armed conflicts, when the U.S. president belongs to the Republican Party, and for borrowers with better balance sheets and prior lending relationships. Notably, not all firms benefit equally, as cross-listed firms and firms in countries with strong institutional quality and ability to attract institutional investors are much less affected by political ties.