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Geopolitical risk and the cost of bank loans

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  • Nguyen, Thanh Cong
  • Thuy, Tien Ho

Abstract

We examine the relation between geopolitical risk and the cost of bank loans using a sample of 31,004 loan facilities in the US over the period 1991–2019. We show that geopolitical risk is associated with higher loan prices and more stringent nonprice loan terms. With one standard deviation increase in the geopolitical risk index, the average cost of bank loans increases by 7.253 basis points. Delving into the components of geopolitical risk, we find that the effects of geopolitical acts on the cost of bank loans and nonprice loan terms are more pronounced than those of geopolitical threats.

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  • Nguyen, Thanh Cong & Thuy, Tien Ho, 2023. "Geopolitical risk and the cost of bank loans," Finance Research Letters, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:finlet:v:54:y:2023:i:c:s154461232300185x
    DOI: 10.1016/j.frl.2023.103812
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    Cited by:

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    2. Brignone, Davide & Gambetti, Luca & Ricci, Martino, 2024. "Geopolitical risk shocks: when the size matters," Working Paper Series 2972, European Central Bank.
    3. Sheikh, Umaid A. & Asadi, Mehrad & Roubaud, David & Hammoudeh, Shawkat, 2024. "Global uncertainties and Australian financial markets: Quantile time-frequency connectedness," International Review of Financial Analysis, Elsevier, vol. 92(C).
    4. Ahmed, Faroque & Gurdgiev, Constantin & Sohag, Kazi & Islam, Md. Monirul & Zeqiraj, Veton, 2024. "Global, local, or glocal? Unravelling the interplay of geopolitical risks and financial stress," Journal of Multinational Financial Management, Elsevier, vol. 75(C).
    5. Gupta, Gaurav, 2023. "Geopolitical risk and investment-cash flow sensitivity: An empirical analysis for Indian business group-affiliated firms and non-business group-affiliated firms," Finance Research Letters, Elsevier, vol. 58(PD).
    6. Tran, Dung Viet & Nguyen, Thanh Cong & Hoang, Huy Viet, 2024. "The impact of the COVID-19 pandemic on bank funding costs," Finance Research Letters, Elsevier, vol. 67(PB).
    7. Sheenan, Lisa, 2023. "Green bonds, conventional bonds and geopolitical risk," Finance Research Letters, Elsevier, vol. 58(PC).
    8. Hossain, Ashrafee T. & Masum, Abdullah-Al & Saadi, Samir, 2024. "The impact of geopolitical risks on foreign exchange markets: Evidence from the Russia–Ukraine war," Finance Research Letters, Elsevier, vol. 59(C).
    9. Carney, Richard W. & El Ghoul, Sadok & Guedhami, Omrane & Wang, He (Helen), 2024. "Geopolitical risk and the cost of capital in emerging economies," Emerging Markets Review, Elsevier, vol. 61(C).
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    More about this item

    Keywords

    Geopolitical risk; Loan pricing;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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