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Political uncertainty and non-pricing terms of financial contract

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  • Yun Zhu

Abstract

The uncertainty embedded in the political environment has greatly impacts on the economy, firm level decision-making, and the cost of capital. This paper shifts the focus towards the financial contract, and specifically looks into the influence of political uncertainty on the non-pricing terms in the private debt contracts. I find, first, the political uncertainty affects the private debt market in general. Loan contracts are loaded with more stringent non-pricing terms during period of political turbulence. Second, with measurement that captures firm’s exposure to the political environment at the time of financial contract origination, I find that firms with larger political exposure have loan contract with higher possibility of collateral requirements, shorter maturities and other more stringent terms. Copyright Eurasia Business and Economics Society 2015

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  • Yun Zhu, 2015. "Political uncertainty and non-pricing terms of financial contract," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 77-109, June.
    • Handle: RePEc:spr:eurase:v:5:y:2015:i:1:p:77-109
    DOI: 10.1007/s40822-015-0021-x
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    More about this item

    Keywords

    Political uncertainty; Financial contact; Non-pricing term; G21; G28; G32; P16;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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