The Choice between Public versus Private Debt and Political Uncertainty

44 Pages Posted: 29 Apr 2017

See all articles by Hamdi Ben Nasr

Hamdi Ben Nasr

Qatar University - College of Business and Economics

Lobna Bouslimi

Concordia University, Quebec

Rui Zhong

The University of Western Australia - UWA Business School

Date Written: April 28, 2017

Abstract

In this paper, we study the effect of political uncertainty on the choice of debt source. Specifically, we examine whether national elections, which aggravates information asymmetry leads to a high degree of reliance on bank debt. Our results show that firms substitute away from public debt toward bank debt during election years. This finding is robust to a battery of sensitivity tests. We also find that the positive relationship between national elections and bank debt ratio is more pronounced in opaque firms and financially constrained firms, respectively. Furthermore, we find that the positive association between national elections and the degree of reliance on bank debt is more profound in firms from countries with stronger (weaker) shareholder rights (labor protection and creditor rights). Finally, we document that firms tend to use more bank debt when elections are closely contested and in countries with stronger constraints on the government.

Keywords: Bank Debt, Public Debt, National Election, Political Uncertainty

JEL Classification: D72, D81, G24, G32

Suggested Citation

Ben Nasr, Hamdi and Bouslimi, Lobna and Zhong, Rui, The Choice between Public versus Private Debt and Political Uncertainty (April 28, 2017). Available at SSRN: https://ssrn.com/abstract=2960067 or http://dx.doi.org/10.2139/ssrn.2960067

Hamdi Ben Nasr (Contact Author)

Qatar University - College of Business and Economics ( email )

2713 Doha
Qatar

Lobna Bouslimi

Concordia University, Quebec ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

Rui Zhong

The University of Western Australia - UWA Business School ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
136
Abstract Views
845
rank
288,953
PlumX Metrics