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Social capital and debt contracting: evidence from bank loans and public bonds

Iftekhar Hasan, Hoi, Chun-Keung (Stan), Qiang Wu and Hao Zhang

No 21/2015, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We find that firms headquartered in U.S. counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social-capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarter relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer bonds over loans. We conclude that debt holders perceive social capital as providing environmental pressure constraining opportunistic firm behaviors in debt contracting.

JEL-codes: G21 G32 Z13 (search for similar items in EconPapers)
Date: 2015
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