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Firm Reputation and Cost of Debt Capital

Deniz Anginer (), Sattar Mansi, A. Joseph Warburton and Celim Yildizhan

MPRA Paper from University Library of Munich, Germany

Abstract: We examine the relation between firm reputation and the cost of debt financing. We posit that corporate reputation represents “soft information” not captured by balance sheet variables, which is nonetheless valuable to lenders. Using Fortune magazine’s survey of company reputation, we find an inverse relation between a company’s reputation and its bond credit spreads. We also find that firms with high reputation face less stringent covenants and are less likely to be the target of SEC fraud investigations. Further testing shows that bad reputation is a good ex ante predictor of corporate failure. Our study provides evidence that firm reputation is an important consideration in the pricing of corporate public debt.

Keywords: Cost of debt and firm reputation; cost of capital and firm reputation; credit risk and firm reputation; cost of debt and firm intangibles; covenant restrictions and firm reputation; fraud and firm reputation; bankruptcy risk and firm reputation (search for similar items in EconPapers)
JEL-codes: D82 G11 G12 G14 G32 G33 L14 M4 (search for similar items in EconPapers)
Date: 2011-06-29, Revised 2015-06-05
New Economics Papers: this item is included in nep-bec
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