Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7360978 | Journal of Empirical Finance | 2014 | 6 Pages |
Abstract
Given that political uncertainty greatly impacts firm level investment decisions, this paper examines whether and how political uncertainty influences a firm's cost of bank loans. We create a novel measurement of individual firm's exposure to political uncertainty and find that fluctuations in the political environment impose additional costs on the loan contract. Economically, a one standard deviation increase in a firm's idiosyncratic political exposure is related to 11.90 basis points of additional spreads. In addition, related lenders have an information advantage in pricing a borrower's future political exposure, while non-related lenders do not have such an advantage. On the supply side, lenders with higher political exposure also request additional loan spreads.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Bill B. Francis, Iftekhar Hasan, Yun Zhu,