Partisanship in Loan Pricing

58 Pages Posted: 7 Oct 2020 Last revised: 12 Mar 2021

See all articles by Ramona Dagostino

Ramona Dagostino

University of Rochester - Simon Business School

Janet Gao

Indiana University - Kelley School of Business

Pengfei Ma

Indiana University - Kelley School of Business

Date Written: September 28, 2020

Abstract

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

Dagostino, Ramona and Gao, Janet and Ma, Pengfei, Partisanship in Loan Pricing (September 28, 2020). Available at SSRN: https://ssrn.com/abstract=3701230 or http://dx.doi.org/10.2139/ssrn.3701230

Ramona Dagostino

University of Rochester - Simon Business School ( email )

300 Crittenden Blvd.
Rochester, NY 14627
United States

Janet Gao (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Pengfei Ma

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

HOME PAGE: http://sites.google.com/view/pengfei

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