Political Ideology and International Capital Allocation

55 Pages Posted: 16 Aug 2021 Last revised: 31 Dec 2022

See all articles by Elisabeth Kempf

Elisabeth Kempf

Harvard University - Business School (HBS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Mancy Luo

Bayes Business School (formerly Cass), City, University of London

Larissa Schäfer

Frankfurt School of Finance & Management

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School

Multiple version iconThere are 5 versions of this paper

Date Written: December 23, 2022

Abstract

Does investors' political ideology shape international capital allocation? We provide evidence from two settings---syndicated corporate loans and equity mutual funds---to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation.

Keywords: capital flows, syndicated loans, mutual funds, political ideology, elections

JEL Classification: G21, G23, G41

Suggested Citation

Kempf, Elisabeth and Luo, Mancy and Schäfer, Larissa and Tsoutsoura, Margarita, Political Ideology and International Capital Allocation (December 23, 2022). Available at SSRN: https://ssrn.com/abstract=3904077 or http://dx.doi.org/10.2139/ssrn.3904077

Elisabeth Kempf (Contact Author)

Harvard University - Business School (HBS) ( email )

Boston, MA 02163
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mancy Luo

Bayes Business School (formerly Cass), City, University of London

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Larissa Schäfer

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School ( email )

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