Scandinavian Working Papers in Economics
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Bank of Finland 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:
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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