[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/16533.html
   My bibliography  Save this paper

Political Ideology and International Capital Allocation

Author

Listed:
  • Kempf, Elisabeth
  • Luo, Mancy
  • Schäfer, Larissa
  • Tsoutsoura, Margarita
Abstract
Does investors' political ideology shape international capital allocation? We provide evidence from two settings---syndicated corporate loans and equity mutual funds---to show ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Ideological alignment on both economic and social issues plays a role. Our empirical strategy ensures direct economic effects of foreign elections or government ties between countries are not driving the result. Ideological distance between countries also explains variation in bilateral investment. Combined, our findings imply ideological alignment is an important, omitted factor in models of international capital allocation.

Suggested Citation

  • Kempf, Elisabeth & Luo, Mancy & Schäfer, Larissa & Tsoutsoura, Margarita, 2022. "Political Ideology and International Capital Allocation," CEPR Discussion Papers 16533, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16533
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP16533
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    2. Giannetti, Mariassunta & Laeven, Luc, 2012. "The flight home effect: Evidence from the syndicated loan market during financial crises," Journal of Financial Economics, Elsevier, vol. 104(1), pages 23-43.
    3. Duchin, Ran & Sosyura, Denis, 2014. "Safer ratios, riskier portfolios: Banks׳ response to government aid," Journal of Financial Economics, Elsevier, vol. 113(1), pages 1-28.
    4. Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2016. "Editor's Choice The Importance of Trust for Investment: Evidence from Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2283-2318.
    5. Matteo Maggiori & Brent Neiman & Jesse Schreger, 2020. "International Currencies and Capital Allocation," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2019-2066.
    6. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    7. Antonio Coppola & Matteo Maggiori & Brent Neiman & Jesse Schreger, 2021. "Redrawing the Map of Global Capital Flows: The Role of Cross-Border Financing and Tax Havens," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1499-1556.
    8. Raymond Fisman & Daniel Paravisini & Vikrant Vig, 2017. "Cultural Proximity and Loan Outcomes," American Economic Review, American Economic Association, vol. 107(2), pages 457-492, February.
    9. Bryan Kelly & Ľuboš Pástor & Pietro Veronesi, 2016. "The Price of Political Uncertainty: Theory and Evidence from the Option Market," Journal of Finance, American Finance Association, vol. 71(5), pages 2417-2480, October.
    10. Hwang, Byoung-Hyoun, 2011. "Country-specific sentiment and security prices," Journal of Financial Economics, Elsevier, vol. 100(2), pages 382-401, May.
    11. Lubos Pástor & Pietro Veronesi, 2012. "Uncertainty about Government Policy and Stock Prices," Journal of Finance, American Finance Association, vol. 67(4), pages 1219-1264, August.
    12. Konrad B Burchardi & Thomas Chaney & Tarek A Hassan, 2019. "Migrants, Ancestors, and Foreign Investments," Review of Economic Studies, Oxford University Press, vol. 86(4), pages 1448-1486.
    13. Konrad Buchardi & Thomas Chaney & Tarek Hassan, 2019. "Migrants, Ancestors and Foreign Investments," Post-Print hal-03260191, HAL.
    14. Hong, Harrison & Kostovetsky, Leonard, 2012. "Red and blue investing: Values and finance," Journal of Financial Economics, Elsevier, vol. 103(1), pages 1-19.
    15. Fos, Vyacheslav & Kempf, Elisabeth & Tsoutsoura, Margarita, 2021. "The Political Polarization of Corporate America," Working Papers 313, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    16. Todd A. Gormley & David A. Matsa, 2014. "Common Errors: How to (and Not to) Control for Unobserved Heterogeneity," The Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 617-661.
    17. repec:hal:spmain:info:hdl:2441/4j5snkuat19kma9diah5p0g5eq is not listed on IDEAS
    18. Clément de Chaisemartin & Xavier D’Haultfœuille, 2023. "Two-way fixed effects and differences-in-differences with heterogeneous treatment effects: a survey," The Econometrics Journal, Royal Economic Society, vol. 26(3), pages 1-30.
    19. Cerutti, Eugenio & Hale, Galina & Minoiu, Camelia, 2015. "Financial crises and the composition of cross-border lending," Journal of International Money and Finance, Elsevier, vol. 52(C), pages 60-81.
    20. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
    21. Mitchell A. Petersen & Raghuram G. Rajan, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 407-443.
    22. Galina Hale & Tümer Kapan & Camelia Minoiu & Philip Strahan, 2020. "Shock Transmission Through Cross-Border Bank Lending: Credit and Real Effects," The Review of Financial Studies, Society for Financial Studies, vol. 33(10), pages 4839-4882.
    23. Ralph De Haas & Neeltje Van Horen, 2013. "Running for the Exit? International Bank Lending During a Financial Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 26(1), pages 244-285.
    24. Viral V Acharya & Tim Eisert & Christian Eufinger & Christian Hirsch, 2018. "Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans," The Review of Financial Studies, Society for Financial Studies, vol. 31(8), pages 2855-2896.
    25. Julio, Brandon & Yook, Youngsuk, 2016. "Policy uncertainty, irreversibility, and cross-border flows of capital," Journal of International Economics, Elsevier, vol. 103(C), pages 13-26.
    26. Atif Mian, 2006. "Distance Constraints: The Limits of Foreign Lending in Poor Economies," Journal of Finance, American Finance Association, vol. 61(3), pages 1465-1505, June.
    27. Michael Schwert, 2018. "Bank Capital and Lending Relationships," Journal of Finance, American Finance Association, vol. 73(2), pages 787-830, April.
    28. Silvers, Roger, 2021. "Does regulatory cooperation help integrate equity markets?," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1275-1300.
    29. Elisabeth Kempf & Margarita Tsoutsoura, 2021. "Partisan Professionals: Evidence from Credit Rating Analysts," Journal of Finance, American Finance Association, vol. 76(6), pages 2805-2856, December.
    30. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    31. Rainer Haselmann & David Schoenherr & Vikrant Vig, 2018. "Rent Seeking in Elite Networks," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1638-1690.
    32. Marcin Kacperczyk & Clemens Sialm & Lu Zheng, 2005. "On the Industry Concentration of Actively Managed Equity Mutual Funds," Journal of Finance, American Finance Association, vol. 60(4), pages 1983-2011, August.
    33. Gabriel Chodorow-Reich, 2014. "The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008-9 Financial Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 1-59.
    34. David Schumacher, 2018. "Home Bias Abroad: Domestic Industries and Foreign Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 31(5), pages 1654-1706.
    35. João Granja & Christian Leuz & Raghuram G. Rajan, 2022. "Going the Extra Mile: Distant Lending and Credit Cycles," Journal of Finance, American Finance Association, vol. 77(2), pages 1259-1324, April.
    36. Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
    37. Rajan, Raghuram G, 1992. "Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
    38. Konrad B Burchardi & Thomas Chaney & Tarek A Hassan, 2019. "Migrants, Ancestors, and Foreign Investments," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(4), pages 1448-1486.
    39. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1095-1131.
    40. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    41. Budge, Ian & Hofferbert, Richard I., 1990. "Mandates and Policy Outputs: U.S. Party Platforms and Federal Expenditures," American Political Science Review, Cambridge University Press, vol. 84(1), pages 111-131, March.
    42. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    43. João A. C. Santos, 2011. "Bank Corporate Loan Pricing Following the Subprime Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1916-1943.
    44. Wintoki, M. Babajide & Xi, Yaoyi, 2020. "Partisan Bias in Fund Portfolios," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(5), pages 1717-1754, August.
    45. Veronika K. Pool & Noah Stoffman & Scott E. Yonker, 2012. "No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2563-2599.
    46. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
    47. Degryse, Hans & De Jonghe, Olivier & Jakovljević, Sanja & Mulier, Klaas & Schepens, Glenn, 2019. "Identifying credit supply shocks with bank-firm data: Methods and applications," Journal of Financial Intermediation, Elsevier, vol. 40(C).
    48. Mark Grinblatt & Matti Keloharju, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, vol. 56(3), pages 1053-1073, June.
    49. Leblang, David, 2010. "Familiarity Breeds Investment: Diaspora Networks and International Investment," American Political Science Review, Cambridge University Press, vol. 104(3), pages 584-600, August.
    50. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    51. Azzimonti, Marina, 2019. "Does partisan conflict deter FDI inflows to the US?," Journal of International Economics, Elsevier, vol. 120(C), pages 162-178.
    52. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    53. Ahern, Kenneth R. & Daminelli, Daniele & Fracassi, Cesare, 2015. "Lost in translation? The effect of cultural values on mergers around the world," Journal of Financial Economics, Elsevier, vol. 117(1), pages 165-189.
    54. Kalok Chan & Vicentiu Covrig & Lilian Ng, 2005. "What Determines the Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocations Worldwide," Journal of Finance, American Finance Association, vol. 60(3), pages 1495-1534, June.
    55. Mariassunta Giannetti & Yishay Yafeh, 2012. "Do Cultural Differences Between Contracting Parties Matter? Evidence from Syndicated Bank Loans," Management Science, INFORMS, vol. 58(2), pages 365-383, February.
    56. Konrad Buchardi & Thomas Chaney & Tarek Hassan, 2019. "Migrants, Ancestors and Foreign Investments," SciencePo Working papers hal-03260191, HAL.
    57. Daniele Girardi, 2020. "Partisan Shocks and Financial Markets: Evidence from Close National Elections," American Economic Journal: Applied Economics, American Economic Association, vol. 12(4), pages 224-252, October.
    58. Choi, Nicole & Fedenia, Mark & Skiba, Hilla & Sokolyk, Tatyana, 2017. "Portfolio concentration and performance of institutional investors worldwide," Journal of Financial Economics, Elsevier, vol. 123(1), pages 189-208.
    59. Oleg Chuprinin & Massimo Massa & David Schumacher, 2015. "Outsourcing in the International Mutual Fund Industry: An Equilibrium View," Journal of Finance, American Finance Association, vol. 70(5), pages 2275-2308, October.
    60. Jagannathan, Murali & Jiao, Wei & Karolyi, G. Andrew, 2022. "Is there a home field advantage in global markets?," Journal of Financial Economics, Elsevier, vol. 143(2), pages 742-770.
    61. David Card & Stefano DellaVigna, 2020. "What Do Editors Maximize? Evidence from Four Economics Journals," The Review of Economics and Statistics, MIT Press, vol. 102(1), pages 195-217, March.
    62. Maria Boutchkova & Hitesh Doshi & Art Durnev & Alexander Molchanov, 2012. "Precarious Politics and Return Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1111-1154.
    63. Lang, Mark & Maffett, Mark & Omartian, James D. & Silvers, Roger, 2020. "Regulatory cooperation and foreign portfolio investment," Journal of Financial Economics, Elsevier, vol. 138(1), pages 138-158.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ambrocio, Gene & Hasan, Iftekhar & Li, Xiang, 2023. "Global political ties and the global financial cycle," IWH Discussion Papers 23/2023, Halle Institute for Economic Research (IWH).
    2. Jaume Belles-Sampera & Montserrat Guillen & Miguel Santolino, 2023. "Haircut Capital Allocation as the Solution of a Quadratic Optimisation Problem," Mathematics, MDPI, vol. 11(18), pages 1-17, September.
    3. Fidrmuc, Jan & Gaibulloev, Khusrav & Mirzaei, Ali & Moore, Tomoe, 2024. "The effect of capital inflows on the imports of capital goods in developing countries," Journal of Corporate Finance, Elsevier, vol. 84(C).
    4. Chrétien, Stéphane & Fu, Hsuan, 2023. "Presidential cycles in international equity flows and returns," Finance Research Letters, Elsevier, vol. 53(C).
    5. Gaia Dossi & Marta Morando, 2023. "Political ideology and innovation," CEP Discussion Papers dp1969, Centre for Economic Performance, LSE.
    6. Aiyar, Shekhar & Malacrino, Davide & Presbitero, Andrea F., 2024. "Investing in friends: The role of geopolitical alignment in FDI flows," European Journal of Political Economy, Elsevier, vol. 83(C).
    7. Zhou, Lu Jolly & Kong, Weimin & Li, Yunshen, 2023. "Cross-listing and predation risk in product markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kempf, Elisabeth & Luo, Mancy & Schafer, Larissa & Tsoutsoura, Margarita, 2022. "Does Political Partisanship Cross Borders? Evidence from International Capital Flows," Working Papers 316, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    2. Accetturo, Antonio & Barboni, Giorgia & Cascarano, Michele & Garcia-Appendini, Emilia, 2020. "Cultural Proximity and the Formation of Lending Relationships," CAGE Online Working Paper Series 514, Competitive Advantage in the Global Economy (CAGE).
    3. Iñaki Aldasoro & Sebastian Doerr & Haonan Zhou, 2023. "Non-bank lending during crises," BIS Working Papers 1074, Bank for International Settlements.
    4. Kostas Pappas & Alice Liang Xu, 2023. "Do foreign lenders' national cultures affect loan pricing?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 2006-2036, April.
    5. Accetturo, Antonio & Barboni, Giorgia & Cascarano, Michele & Garcia-Appendini, Emilia, 2023. "The role of culture in firm-bank matching," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    6. Drobetz, Wolfgang & Mönkemeyer, Marwin & Requejo, Ignacio & Schröder, Henning, 2023. "Foreign bias in institutional portfolio allocation: The role of social trust," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 233-269.
    7. Keil, Jan, 2023. "Lending relationships when creditors are in control," Journal of Corporate Finance, Elsevier, vol. 79(C).
    8. repec:zbw:bofrdp:2019_003 is not listed on IDEAS
    9. Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2020. "Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation [A theory of systemic risk and design of prudential bank regulation]," Review of Finance, European Finance Association, vol. 24(1), pages 1-43.
    10. Gad, Mahmoud & Nikolaev, Valeri & Tahoun, Ahmed & van Lent, Laurence, 2024. "Firm-level political risk and credit markets," Journal of Accounting and Economics, Elsevier, vol. 77(2).
    11. Steven Poelhekke & Razvan Vlahu & Vadym Volosovych, 2021. "Corporate Acquisitions and Bank Relationships," Working Papers 726, DNB.
    12. Celil, Hursit S. & Julio, Brandon & Selvam, Srinivasan, 2023. "Investment sensitivity to lender default shocks," Journal of Corporate Finance, Elsevier, vol. 79(C).
    13. Saka, Orkun, 2019. "Domestic banks as lightning rods? Home bias and information during Eurozone crisis," Research Discussion Papers 3/2019, Bank of Finland.
    14. Eduard Gaar & David Scherer & Dirk Schiereck, 2022. "The home bias and the local bias: A survey," Management Review Quarterly, Springer, vol. 72(1), pages 21-57, February.
    15. Lončarski, Igor & Marinč, Matej, 2020. "The political economy of relationship banking," Research in International Business and Finance, Elsevier, vol. 51(C).
    16. Olivier Darmouni, 2020. "Informational Frictions and the Credit Crunch," Journal of Finance, American Finance Association, vol. 75(4), pages 2055-2094, August.
    17. Doerr, Sebastian & Schaz, Philipp, 2021. "Geographic diversification and bank lending during crises," Journal of Financial Economics, Elsevier, vol. 140(3), pages 768-788.
    18. Laeven, Luc & Popov, Alexander, 2023. "Carbon taxes and the geography of fossil lending," Journal of International Economics, Elsevier, vol. 144(C).
    19. A. Burietz & L. Ureche-Rangau, 2020. "Better the devil you know: Home and sectoral biases in bank lending," International Economics, CEPII research center, issue 164, pages 69-85.
    20. Lee, Edward & Pappas, Kostas & Xu, Alice Liang, 2020. "Foreign Lenders’ adoption of performance pricing provisions in syndicated loans," Journal of Banking & Finance, Elsevier, vol. 118(C).
    21. Ozan Güler & Mike Mariathasan & Klaas Mulier & Nejat G. Okatan, 2021. "The real effects of banks' corporate credit supply: A literature review," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1252-1285, July.

    More about this item

    Keywords

    Elections; Capital flows; Syndicated loans; Mutual funds; Polarization; Ideology;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:16533. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.