No. 87: Firm-level political risk and credit markets

Jahr: 2022
Typ: Working Paper

Abstract

We take advantage of a new measure of political risk (Hassan et al. (2019)) to study the effects of firmlevel political risk on private debt markets. First, we use panel data tests and exploit the redrawing of US congressional districts to uncover plausibly exogenous variation in firm-level political risk. We show that borrowers’ political risk is causally linked to interest rates set by lenders. Second, we test for the transmission of political risk from lenders to borrowers. We predict and find that lender-level political risk propagates to borrowers through lending relationships. Furthermore, we introduce new text-based methods to understand the distinct sources of political risk to lenders and borrowers and provide textual evidence of the transmission of political risk from lenders to borrowers. Our analysis allows for endogenous matching between lenders and borrowers and indicates the role of network effects in diffusing political risk throughout the economy.

Beteiligte Institutionen

Die Hauptstandorte vom TRR 266 sind die Universität Paderborn (Sprecherhochschule), die HU Berlin und die Universität Mannheim. Alle drei Standorte sind seit vielen Jahren Zentren für Rechnungswesen- und Steuerforschung. Hinzu kommen Wissenschaftler der LMU München, der Frankfurt School of Finance and Management, der Goethe-Universität Frankfurt, der Universität zu Köln und der Leibniz Universität Hannover, die die gleiche Forschungsagenda verfolgen.

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