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Religiosity and the cost of debt

Author

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  • Chen, Hanwen
  • Huang, Henry He
  • Lobo, Gerald J.
  • Wang, Chong

Abstract

In a cross-country setting, we document that stronger religiosity is associated with lower loan interest spread. In addition, we show that this negative association is more pronounced in countries with weaker creditor rights, suggesting that religious values play a more significant role in constraining opportunistic behavior in a weaker legal environment. Our analysis reveals that stronger religiosity is also related to other favorable terms in loan contracting, such as larger facility amount, use of accounting-based performance pricing, and lower upfront fee. Corroborating our cross-country findings, we also show that in the U.S. setting, firms in regions with stronger religiosity enjoy lower loan interest spread. Our study contributes to understanding the important role religiosity plays in debt financing.

Suggested Citation

  • Chen, Hanwen & Huang, Henry He & Lobo, Gerald J. & Wang, Chong, 2016. "Religiosity and the cost of debt," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 70-85.
    • Handle: RePEc:eee:jbfina:v:70:y:2016:i:c:p:70-85
    DOI: 10.1016/j.jbankfin.2016.06.005
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    More about this item

    Keywords

    Religiosity; Cost of debt; Creditor rights; Religious diversity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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