Partisan Conflict and Corporate Credit Spreads

66 Pages Posted: 27 Apr 2021 Last revised: 22 Sep 2021

See all articles by Liyao Wang

Liyao Wang

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: April 15, 2021

Abstract

I document a positive relationship between partisan conflict and corporate credit spreads. A one
standard deviation increase in partisan conflict is associated with a 2.61 basis point increase in
the next one-month corporate credit spreads after controlling for bond issue information, firm
characteristics, macroeconomic variables, uncertainty measures, and sentiment measures. The
result holds when using instrumental variable to resolve endogeneity concerns. I further find that
partisan conflict has a greater impact on corporate credit spreads for firms that actively engaged in
political activities. Intensified partisan conflict affects excess bond premium and influences credit
spreads primarily via discount rates.

Keywords: Partisan conflict, Political polarization, Corporate credit spreads, Political donation

JEL Classification: G12, G17, P16

Suggested Citation

Wang, Liyao, Partisan Conflict and Corporate Credit Spreads (April 15, 2021). Available at SSRN: https://ssrn.com/abstract=3834884 or http://dx.doi.org/10.2139/ssrn.3834884

Liyao Wang (Contact Author)

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong
Hong Kong

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