DP16533 Does Political Partisanship Cross Borders? Evidence from International Capital Flows

Author(s): Elisabeth Kempf, Mancy Luo, Larissa Schaefer, Margarita Tsoutsoura
Publication Date: September 2021
Date Revised: September 2021
Keyword(s): Capital Flows, Elections, Mutual funds, partisanship, Polarization, syndicated loans
JEL(s): G21, G23, G41
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16533

Does partisan perception shape the flow of international capital? We provide evidence from two settings, syndicated corporate loans and equity mutual funds, to show that ideological alignment with foreign governments affects the cross-border capital allocation by U.S. institutional investors. Moreover, we find that ideological alignment with foreign countries also affects investments of non-U.S. investors and can explain patterns in bilateral FDI flows. Our empirical strategy ensures that direct economic effects of foreign elections or bilateral ties between countries are not driving the result. Combined, our findings imply that partisan perception is a global phenomenon and its economic effects transcend national borders.