Partisanship in Loan Pricing
58 Pages Posted: 7 Oct 2020 Last revised: 12 Mar 2021
Date Written: September 28, 2020
We show that lenders' partisan bias influences their pricing of corporate loans. Using novel data on the voter registration records of bankers in charge of originating large-scale corporate loans, we find that bankers who are registered with a different party from the one represented by the President of the United States ("misaligned bankers'') charge 7% higher loan spreads compared to bankers affiliated with the same party as the President. This effect is stronger during periods of intense partisan conflicts, and when left- and right-wing media strongly disagree over the state of the economy. It is also stronger for borrowers with limited outside credit options and for bankers living in areas with homogeneous political beliefs. The effect is not explained by bankers' innate characteristics, borrower fundamentals, or bank-level policies. Overall, our evidence is consistent with misaligned bankers having a more pessimistic economic outlook. We also show that bankers who share the same partisan beliefs are more likely to form lending syndicates together, and such homogeneous teams exhibit stronger partisan biases on loan spreads. Despite charging higher interest rates, misaligned bankers do not seem to generate higher revenue than aligned bankers.
Keywords: Partisanship, Politics, Syndicated Loan Pricing, Credit Spreads
JEL Classification: G21, G32, G42, G10, D72
Suggested Citation: Suggested Citation