Partisanship in Loan Pricing

Abstract

Do partisan perceptions influence the way investors price securities? Using voter registration data of bankers originating large corporate loans, we show that bankers whose party differs from that of the U.S. President charge 7% higher loan spreads than other bankers. This effect is amplified when greater partisan disagreement is portrayed in the media, including news articles and political advertisement. Bankers do not match disproportionately with co-partisan borrowers but are more likely to lead syndicates with co-partisan bankers. Our results are not driven by bank or borrower fundamentals. Instead, they suggest that investors’ optimism, driven by political alignment, shapes asset prices.

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

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