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The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation

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  • Andreas Hoepner
  • Ioannis Oikonomou
  • Bert Scholtens
  • Michael Schröder

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 on 28 different countries across the world and operating in all major industries. Our principal findings reveal that country sustainability related 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 country sustainability scores is associated with an average decrease in the costs of debt by 64 basis points. Our analysis shows that the environmental dimension of a country's institutional framework is approximately two times as impactful as the societal 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.
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Suggested Citation

  • Andreas Hoepner & Ioannis Oikonomou & Bert Scholtens & Michael Schröder, 2016. "The Effects of Corporate and Country Sustainability Characteristics on The Cost of Debt: An International Investigation," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(1-2), pages 158-190, January.
  • Handle: RePEc:bla:jbfnac:v:43:y:2016:i:1-2:p:158-190
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    File URL: http://hdl.handle.net/10.1111/jbfa.2016.43.issue-1-2
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    Cited by:

    1. Mohammed Benlemlih & Isabelle Girerd-Potin, 2017. "Corporate social responsibility and firm financial risk reduction: On the moderating role of the legal environment," Post-Print hal-01977064, HAL.
    2. Gunther Capelle-Blancard & Patricia Crifo & Marc-Arthur Diaye & Rim Oueghlissi & Bert Scholtens, 2016. "Environmental, Social and Governance (ESG) performance and sovereign bond spreads: an empirical analysis of OECD countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01401718, HAL.
    3. repec:bla:jbfnac:v:44:y:2017:i:7-8:p:1137-1166 is not listed on IDEAS
    4. Yang Stephanie Liu & Xiaoyan Zhou & Jessica Yang & Andreas Hoepner, 2016. "Corporate Carbon Emission and Financial Performance: Does Carbon Disclosure Mediate the Relationship in the UK?," ICMA Centre Discussion Papers in Finance icma-dp2016-03, Henley Business School, Reading University.
    5. repec:eee:jbfina:v:98:y:2019:i:c:p:156-169 is not listed on IDEAS

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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