← Search

Journal of Financial Economics Vol. 136 No. 2 2020

Democracy and credit

Manthos D. Delis1; Iftekhar Hasan2,3,4; Steven Ongena5,6,7,8

1 Montpellier Business School · 2 The University of Sydney · 3 Fordham University · 4 Bank of Finland · 5 University of Zurich · 6 Swiss Finance Institute · 7 Centre for Economic Policy Research · 8 KU Leuven

open access

Abstract

Does democratization reduce the cost of credit? Using global syndicated loan data from 1984 to 2014, we find that democratization has a sizable negative effect on loan spreads: a 1-point increase in the zero-to-ten Polity IV index of democracy shaves at least 19 basis points off spreads, but likely more. Reversals to autocracy hike spreads more strongly. Our findings are robust to the comprehensive inclusion of relevant controls, to the instrumentation with regional waves of democratization, and to a battery of other sensitivity tests. We thus highlight the lower cost of loans as one relevant mechanism through which democratization can affect economic development.

DOI
10.1016/j.jfineco.2019.09.013
Volume
136
Issue
2
Pages
571-596
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite