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The effects of corporate and country sustainability characteristics on the cost of debt : an international investigation

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ZEW_discussion_paper_14_100_Oikonomou_et_al_Corporate_and_Country_Sustainability_and_the_Cost_of_Debt.pdf (396.6Kb)
Date
02/2016
Author
Hoepner, Andreas
Oikonomou, Ioannis
Scholtens, Bert
Schröder, Michael
Keywords
Corporate social responsibility
CSR
CSP
Sustainability
Banking
Financial contracts
Culture
Loans
International
HG Finance
HD28 Management. Industrial Management
HF5601 Accounting
Business, Management and Accounting (miscellaneous)
Accounting
Finance
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Abstract
We investigate the relationship between corporate and country sustainability on the cost of bank loans. We look into 470 loan agreements signed between 2005 and 2012 with borrowers based in 28 different countries across the world and operating in all major industries. Our principal findings reveal that country sustainability, relating to both social and environmental frameworks, has a statistically and economically impactful effect on direct financing of economic activity. An increase of one unit in a country's sustainability score is associated with an average decrease in the cost of debt by 64 basis points. Our international analysis shows that the environmental dimension of a country's institutional framework is approximately twice as impactful as the social dimension, when it comes to determining the cost of corporate loans. On the other hand, we find no conclusive evidence that firm-level sustainability influences the interest rates charged to borrowing firms by banks. Our main findings survive a battery of robustness tests and additional analyses concerning subsamples, alternative sustainability metrics and the effects of financial crisis.
Citation
Hoepner , A , Oikonomou , I , Scholtens , B & Schröder , M 2016 , ' The effects of corporate and country sustainability characteristics on the cost of debt : an international investigation ' , Journal of Business Finance and Accounting , vol. 43 , no. 1-2 , pp. 158-190 . https://doi.org/10.1111/jbfa.12183
Publication
Journal of Business Finance and Accounting
Status
Peer reviewed
DOI
https://doi.org/10.1111/jbfa.12183
ISSN
0306-686X
Type
Journal article
Rights
Published version is copyright © 2016 John Wiley & Sons Ltd. This work is made available online in accordance with publisher's policies. This is the author created, submitted version and may differ from the final published version. The final published version is available at https://doi.org/10.1111/jbfa.12183
Description
This project was funded via a SEEK grant provided by the Centre for European Economic Research.
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  • University of St Andrews Research
URI
http://hdl.handle.net/10023/9620

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