 Impact of social drinking culture on the cost of bank loans: Rent-seeking or loan-contracting efficiencyJianhua Tan, Zhan Wang and Kam C. Chan Economic Modelling, 2024, vol. 141, issue C Abstract: This study investigates whether social drinking culture (SDC), as an informal institution, impacts the cost of bank loans to a firm. Studies suggest that SDC influences individual behavior by fostering interpersonal relationships. Few studies have explored the impact of SDC on corporate borrowing. We argue that executives use SDC to obtain bank loans at lower interest rates. However, the mechanism remains unclear. Firms can leverage SDC to engage in rent-seeking from or improve communication with lenders. We tested the hypothesis and the underlying mechanism on a sample of Chinese firms from 2011 to 2020. Results suggest that the SDC lowers bank loan rates for firms and supports the rent-seeking mechanism. Furthermore, firms in strong SDC regions have larger sizes, longer maturities, and more non-collateralized loans but perform poorly in corporate and bank loans. Therefore, strong SDC is used by firms to engage in rent-seeking borrowing, resulting in credit resource misallocation. Keywords: Social drinking culture; The cost of bank loans; Information asymmetry; Rent-seeking (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:141:y:2024:i:c:s0264999324002694 DOI: 10.1016/j.econmod.2024.106912 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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