Partisanship in Loan Pricing

Abstract

Do partisan perceptions influence the way investors price securities? Using novel data on voter registration records of bankers originating large corporate loans, we find a strong partisan effect in loan pricing: Misaligned bankers, i.e., whose party differs from that of the U.S. President, charge 7\% higher loan spreads than aligned bankers. This effect is amplified when partisan conflicts intensify, when left- and right-wing media strongly disagree over economic conditions, and for borrowers with limited alternative credit options. Our result is not explained by borrower or bank fundamentals but is consistent with misaligned bankers having a more pessimistic outlook.

Keywords: Partisanship, Politics, Syndicated Loan Pricing, Credit Spreads

JEL Classification: G21, G32, G42, G10, D72