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Political uncertainty and non-pricing terms of financial contract

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  • Yun Zhu

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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

Suggested Citation

  • 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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    File URL: http://hdl.handle.net/10.1007/s40822-015-0021-x
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    Cited by:

    1. Gozgor, Giray & Lau, Chi Keung Marco & Bilgin, Mehmet Huseyin, 2016. "Commodity markets volatility transmission: Roles of risk perceptions and uncertainty in financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 35-45.

    More about this item

    Keywords

    Political uncertainty; Financial contact; Non-pricing term; G21; G28; G32; P16;

    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 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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