Research Discussion Papers, Bank of Finland
No 21/2015:
Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds
Iftekhar Hasan ()
, Chun-Keung (Stan) Hoi ()
, Qiang Wu ()
and Hao Zhang ()
Abstract: We find that firms headquartered in U.S. counties with
higher levels of social capital incur lower bank loan spreads. This finding
is robust to using organ donation as an alternative social-capital measure
and incremental to the effects of religiosity, corporate social
responsibility, and tax avoidance. We identify the causal relation using
companies with a social-capital-changing headquarter relocation. We also
find that high-social-capital firms face loosened nonprice loan terms,
incur lower at-issue bond spreads, and prefer bonds over loans. We conclude
that debt holders perceive social capital as providing environmental
pressure constraining opportunistic firm behaviors in debt contracting.
Keywords: social capital; cooperative norm; moral hazard; cost of bank loans; public bonds; (follow links to similar papers)
JEL-Codes: G21; G32; Z13; (follow links to similar papers)
64 pages, November 20, 2015
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- This paper is forthcoming as:
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Hasan, Iftekhar, Chun-Keung (Stan) Hoi, Qiang Wu and Hao Zhang, 'Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds', Journal of Financial and Quantitative Analysis.
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