Does Country-Specific Globalization Impact Private Loan Contracts?

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Date
2015-04-09
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Virginia Tech
Abstract

In this study I investigate the impact that operating in specific foreign countries has on the bank loan contracts of multinational companies. While previous research has shown that increased firm globalization leads to a lower cost of bank debt, I find that this relationship is attenuated when firms operate in countries with certain institutional attributes. Using income levels, creditor rights, and property rights as institutional indices, I test the association of country-level factors with the priced and non-priced components of bank loan contracts. I find that globalized firms operating in low income countries, countries with weak creditor rights, or countries with weak property rights do not receive the same positive debt contracting features as do firms operating in high income countries, countries with strong creditor rights, or countries with strong property rights.

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Keywords
Corporate Globalization, Bank Lending, Creditor Rights, Property Rights, Cost of Debt, Loans
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