Political Sentiment and Syndicated Loan Borrowing Costs of Multinational Enterprises

Forthcoming, Journal of International Financial Markets, Institutions & Money

47 Pages Posted: 11 Jan 2021 Last revised: 7 Mar 2022

See all articles by Panagiotis Karavitis

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School

Pantelis Kazakis

University of Glasgow - Adam Smith Business School

Date Written: March 5, 2022

Abstract

International business literature widely recognizes that political forces play a crucial role in modern corporations. Yet, rare are the studies of how foreign operations mitigate the detrimental effect that firm-level political exposure has on the cost of lending. We study such channels in a sample of U.S. corporations with foreign subsidiaries in 69 countries. We proxy firm-level political exposure via political sentiment. We show that firms with a lower political sentiment (i.e., higher political exposure) have a higher cost of lending. We document that multinational enterprises with a presence in many countries, and those having an extended network of foreign subsidiaries can lower the harmful effects of increased political uncertainty. This outcome also holds in the presence of foreign economies of scale, and when multinational corporations have foreign subsidiaries in countries with higher political polarization.

Keywords: political sentiment, syndicated loans, multinationals, international diversification

JEL Classification: G21, G18, P16

Suggested Citation

Karavitis, Panagiotis and Kazakis, Pantelis, Political Sentiment and Syndicated Loan Borrowing Costs of Multinational Enterprises (March 5, 2022). Forthcoming, Journal of International Financial Markets, Institutions & Money, Available at SSRN: https://ssrn.com/abstract=3747125 or http://dx.doi.org/10.2139/ssrn.3747125

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Glasgow
Glasgow, West End G12 8QQ
United Kingdom

HOME PAGE: http://https://www.gla.ac.uk/schools/business/staff/panagiotiskaravitis/

Pantelis Kazakis (Contact Author)

University of Glasgow - Adam Smith Business School ( email )

Adam Smith Business School
Gilbert Scott Building
Glasgow, Scotland G12 8QQ
United Kingdom

HOME PAGE: http://sites.google.com/site/panteliskazakis/home

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