Does Country-Specific Globalization Impact Private Loan Contracts?

• In Event: Effect of IFRS on Debt Markets
  In Paper Session: Economic Consequences of IFRS Adoption II

Abstract

The objective of this study is to 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 globalization for firms 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 conclude that globalized firms operating in poor 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 wealthy countries, countries with strong creditor rights, or countries with strong property rights.

Author

• Brandon D Ater, Virginia Polytechnic Institute and State University