Trust and the cost of debt financing
Yijun Meng and
Chao Yin
Journal of International Financial Markets, Institutions and Money, 2019, vol. 59, issue C, 58-73
Abstract:
This paper examines the relation between the level of trust in a country and the cost of debt. Using data on firms located in 22 countries over a 20-year period, we quantify the country trust level and find strong evidence that firms in countries with a higher level of societal trust have lower bond yield spreads. We also find that the impact of trust on the cost of debt is more pronounced in countries with a poor governance environment and during a time of financial crisis. Overall, our results highlight the role of social capital in shaping corporate financial behavior.
Keywords: Societal trust; Social capital; Bond yield spreads; Informal institutions (search for similar items in EconPapers)
JEL-codes: F22 G34 G38 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (40)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:59:y:2019:i:c:p:58-73
DOI: 10.1016/j.intfin.2018.11.009
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