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
Date Written: March 5, 2022
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: Suggested Citation