A BIT of Investor Protection: How Bilateral Investment Treaties Impact the Terms of Syndicated Loans

65 Pages Posted: 17 Feb 2015 Last revised: 14 Jan 2017

See all articles by Veljko Fotak

Veljko Fotak

School of Management, University at Buffalo (SUNY); Sovereign Investment Lab, Baffi Carefin, Bocconi University

Haekwon Lee

The University of Sydney

William L. Megginson

University of Oklahoma

Date Written: January 11, 2017

Abstract

We study the impact of government expropriation risk on the terms of cross-border syndicated loans. By comparing loans by foreign lenders from countries covered by bilateral investment treaties (BITs) to loans from non-covered countries, we isolate and quantify the impact of strengthening property rights against government expropriation on loans. We find that stronger property rights lead to a lower cost of debt, larger loans, larger syndicates, less collateral, and fewer covenants. Results are stronger in countries with a history of government expropriation and robust to methodologies accounting for the endogenous nature of BITs and for the simultaneous determination of loan terms.

Keywords: Property rights, political risk, government expropriation, syndicated loans

JEL Classification: G15, G32, G38

Suggested Citation

Fotak, Veljko and Lee, Haekwon and Megginson, William L., A BIT of Investor Protection: How Bilateral Investment Treaties Impact the Terms of Syndicated Loans (January 11, 2017). 29th Australasian Finance and Banking Conference 2016, Available at SSRN: https://ssrn.com/abstract=2565136 or http://dx.doi.org/10.2139/ssrn.2565136

Veljko Fotak (Contact Author)

School of Management, University at Buffalo (SUNY) ( email )

School of Management, University at Buffalo
236 Jacobs Management Center
Buffalo, NY 14260
United States
+1 716-645-1541 (Phone)

Sovereign Investment Lab, Baffi Carefin, Bocconi University ( email )

Via Roentgen 1
Milan
Italy

Haekwon Lee

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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