A BIT of Investor Protection: How Bilateral Investment Treaties Impact the Terms of Syndicated Loans
65 Pages Posted: 17 Feb 2015 Last revised: 14 Jan 2017
Date Written: January 11, 2017
We study the impact of government expropriation risk on the terms of cross-border syndicated loans. By comparing loans by foreign lenders from countries covered by bilateral investment treaties (BITs) to loans from non-covered countries, we isolate and quantify the impact of strengthening property rights against government expropriation on loans. We find that stronger property rights lead to a lower cost of debt, larger loans, larger syndicates, less collateral, and fewer covenants. Results are stronger in countries with a history of government expropriation and robust to methodologies accounting for the endogenous nature of BITs and for the simultaneous determination of loan terms.
Keywords: Property rights, political risk, government expropriation, syndicated loans
JEL Classification: G15, G32, G38
Suggested Citation: Suggested Citation