Religiosity and the cost of debt

Hanwen Chen, Henry He Huang, Gerald J. Lobo and Chong Wang

Journal of Banking & Finance, 2016, vol. 70, issue C, 70-85

Abstract: In a cross-country setting, we document that stronger religiosity is associated with lower loan interest spread. In addition, we show that this negative association is more pronounced in countries with weaker creditor rights, suggesting that religious values play a more significant role in constraining opportunistic behavior in a weaker legal environment. Our analysis reveals that stronger religiosity is also related to other favorable terms in loan contracting, such as larger facility amount, use of accounting-based performance pricing, and lower upfront fee. Corroborating our cross-country findings, we also show that in the U.S. setting, firms in regions with stronger religiosity enjoy lower loan interest spread. Our study contributes to understanding the important role religiosity plays in debt financing.

Keywords: Religiosity; Cost of debt; Creditor rights; Religious diversity (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:70:y:2016:i:c:p:70-85

DOI: 10.1016/j.jbankfin.2016.06.005

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