Firm-level political risk and bank loan contracting
Walid Saffar, Yang Wang, K. C. John Wei
Contemporary Accounting Research · 2024 · Volume 41 · Issue 3
Abstract
We investigate the impact of firm-level political risk on loan contracting. We find that firm-level political risk is positively associated with bank loan cost and that this effect is stronger for firms experiencing increased operational uncertainty and higher default risks. Firm-level political risk also leads to more unfavorable non-pricing loan terms. To alleviate endogeneity concerns, we use an instrumental variable approach and placebo tests. We further find that political connections and relationship-based borrowing can attenuate the adverse effect of firm-level political risk on loan contracting.
Keywords
bank loan cost, default risk, firm-level political risk, loan covenants, operational uncertainty, clauses de prêt, incertitude opérationnelle, risque de crédit, risque politique inhérent aux entreprises, taux des prêts bancaires
Enable JavaScript for citation tools and additional paper interactions.