The effects of corporate and country sustainability characteristics on the cost of debt : an international investigation
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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.
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 . DOI: 10.1111/jbfa.12183
Journal of Business Finance and Accounting
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
This project was funded via a SEEK grant provided by the Centre for European Economic Research.