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

Andreas Hoepner, Ioannis Oikonomou*, Bert Scholtens, Michael Schröder

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

48 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)158-190
Number of pages33
JournalJournal of Business Finance and Accounting
Volume43
Issue number1-2
DOIs
Publication statusPublished - Feb 2016

Keywords

  • Corporate social responsibility
  • CSR
  • CSP
  • Sustainability
  • Banking
  • Financial contracts
  • Culture
  • Loans
  • International

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