International Lending: The Role of Creditor Laws and Self Selection

81 Pages Posted: 10 May 2018 Last revised: 21 Mar 2019

See all articles by Mehdi Beyhaghi

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond

Rui Dai

Wharton Research Data Services (WRDS)

Anthony Saunders

New York University - Leonard N. Stern School of Business

John K. Wald

University of Texas at San Antonio

Date Written: March 14, 2019

Abstract

The multinational syndicated loan market has crossed the $7 trillion threshold. Prior literature argues that weak borrower creditor rights is the main limiting factor to cross-border lending. We argue that lender country’s creditor rights can substitute for weak borrower creditor rights if a lender is from a better creditor rights country. Consistent with this argument, we find a strong relationship between lender laws and multinational loan contract terms. Importantly, we control for a borrower’s endogenous choice of lender, its country laws, its foreign assets, and loan guarantees provided by the borrower’s parent company or major shareholders.

Keywords: International Finance, Multinational Loans, Creditor Rights, Property Rights, Borrower self-selection

JEL Classification: F34, G15, G33, O16

Suggested Citation

Beyhaghi, Mehdi and Dai, Rui and Saunders, Anthony and Wald, John K., International Lending: The Role of Creditor Laws and Self Selection (March 14, 2019). Available at SSRN: https://ssrn.com/abstract=3168972 or http://dx.doi.org/10.2139/ssrn.3168972

Mehdi Beyhaghi

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Rui Dai

Wharton Research Data Services (WRDS) ( email )

3819 Chestnut St
Suite 300
Philadelphia, PA PA 19104
United States

Anthony Saunders (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

John K. Wald

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
210-458-6324 (Phone)

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