The Limits of Hegemony: Banks, Covert Actions, and Foreign Firms

Economic sanctions and covert actions from hegemonic states are common tools used to in-fluence other countries. Less is known about non-state actors such as banks and their impact across borders. We use new firm-level data from Chile to document a substantial decrease in financial relations with U.S. banks after socialist Salvador Allende took office in 1970. An analysis of links with banks from other countries reveals that part of the decrease was specific to the U.S. banking sector. Business reports and stock prices suggest that firms were mostly unaffected by the destruction of links with U.S. banks. Substitution of financial relations to-wards state-owned banks appears to be the key mechanism to explain these findings.