Economic preferences for risk-taking and financing costs

Manthos D. Delis, Iftekhar Hasan, Maria Iosifidi and Chris Tsoumas

Journal of Corporate Finance, 2023, vol. 80, issue C

Abstract: We hypothesize and empirically establish that economic preferences for risk-taking in different subnational regions affect firm financing costs. We study this hypothesis by hand-matching firms' regions worldwide with the corresponding regional economic risk-taking preferences. We first show that higher regional risk-taking is positively associated with several measures of firm risk and investments. Subsequently, our baseline results show that credit and bond pricing increase when risk-taking preferences increase. For the loan of average size and maturity a one-standard-deviation increase in regional risk-taking increases interest expense by $0.54 million USD. We also find that these results are demand (firm)-driven and stronger for firms with more local shareholders.

Keywords: Regional economic preferences; Risk-taking; Financing costs; Loan spreads; Bond spreads (search for similar items in EconPapers)
JEL-codes: G21 G32 G41 Z13 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:80:y:2023:i:c:s092911992300072x

DOI: 10.1016/j.jcorpfin.2023.102423

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