Political Tensions and Corporate Cross-border Financing: Evidence from the China-U.S. Trade War

A growing body of literature has explored the effects of political tensions on international trade and consumers’ behavior. Still, little is known whether or to what extend it matters to corporations’ cross-border financing activities. This study fills such gap in the literature by investigating the impacts of the recent China-U.S. trade war on Chinese firms’ international syndicated loans. This quasi-nature experiment facilitates the difference-in-differences (DD) identification strategy and we use Chinese corporations seeking international borrowing as the treatment group and non-Chinese counterparties as the control group. Our analysis is taken at both the aggregate level and the deal level. Preliminary results suggest significant negative aggregate consequences, including the number of loan initiations as well as their amount. Deal level estimations exhibit the similar pattern: loan spreads and maturities were adversely affected; and sizes of syndicates became bigger and the probability of secured loan occurrence was higher for Chinese corporations. To substantiate the argument that the observed gloom was caused by the trade war, we adopt the triple difference-in-differences (DDD) estimation method by exploiting U.S. borrowers as an additional level of variation.