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Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds
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Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds
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Journal Article
Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds
2017
Overview
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 headquarters relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer public bonds over bank loans. We conclude that debt holders perceive social capital as providing environmental pressure that constrains opportunistic firm behaviors in debt contracting.
Publisher
Cambridge University Press,CAMBRIDGE UNIVERSITY PRESS
