Political Ideology and International Capital Allocation

Chicago Booth Research Paper No. 21-22

52 Pages Posted: 10 Sep 2021 Last revised: 20 Jun 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

Erasmus University

Larissa Schäfer

Frankfurt School of Finance & Management

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Multiple version iconThere are 5 versions of this paper

Date Written: June 16, 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

Suggested Citation

Kempf, Elisabeth and Luo, Mancy and Schäfer, Larissa and Tsoutsoura, Margarita, Political Ideology and International Capital Allocation (June 16, 2022). Chicago Booth Research Paper No. 21-22, Available at SSRN: https://ssrn.com/abstract=3920658 or http://dx.doi.org/10.2139/ssrn.3920658

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

Erasmus University ( email )

Burgemeester Oudlaan 50,
Mandeville Building, Room T08-47,
Rotterdam, 3062PA
Netherlands

HOME PAGE: http://sites.google.com/site/mancyluofinance/

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 )

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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