A BIT of Investor Protection: How Bilateral Investment Treaties Impact the Terms of Syndicated Loans

Abstract

We study the impact of government expropriation risk on the terms of cross-border syndicated loans. By comparing loans by foreign lenders from countries covered by bilateral investment treaties (BITs) to loans from non-covered countries, we isolate and quantify the impact of strengthening property rights against government expropriation on loans. We find that stronger property rights lead to a lower cost of debt, larger loans, larger syndicates, less collateral, and fewer covenants. Results are stronger in countries with a history of government expropriation and robust to methodologies accounting for the endogenous nature of BITs and for the simultaneous determination of loan terms.

Keywords: Property rights, political risk, government expropriation, syndicated loans

JEL Classification: G15, G32, G38