Firm‐Level Political Risk and Credit Markets

Gad, Mahmoud and Nikolaev, Valeri and van Lent, Laurence and Tahoun, Ahmed (2024) Firm‐Level Political Risk and Credit Markets. Journal of Accounting and Economics, 77 (2-3): 101642. ISSN 0165-4101

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Abstract

We take advantage of a new composite measure of political risk (Hassan et al., 2019) to study the effects of firm-level 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 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. Our analysis allows for endogenous matching between lenders and borrowers and indicates the presence of network effects in diffusing political risk throughout the economy. Finally, we introduce new text-based methods to analyze the distinct sources of political risk to lenders and borrowers and provide textual evidence of the transmission of political risk from lenders to borrowers.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Accounting and Economics
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
?? credit marketsearnings callsfinancial institutionspolitical riskeconomics and econometricsaccountingfinance ??
ID Code:
203294
Deposited By:
Deposited On:
06 Sep 2023 08:05
Refereed?:
Yes
Published?:
Published
Last Modified:
16 Jul 2024 00:08