DP14892 The Dollar and Corporate Borrowing Costs

Author(s): Ralf Meisenzahl, Friederike Niepmann, Tim Schmidt-Eisenlohr
Publication Date: June 2020
Keyword(s): Dollar, institutional investors, Loan pricing, Risk Taking, syndicated loans
JEL(s): F15, G15, G21, G23
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14892

We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar determine U.S. borrowing costs.