Do Cultural Differences Between Contracting Parties Matter? Evidence from Syndicated Bank Loans
We investigate whether cultural differences between professional decision makers affect financial contracts in a large data set of international syndicated bank loans. We find that more culturally distant lead banks offer borrowers smaller loans at a higher interest rate and are more likely to require third-party guarantees. These effects do not disappear following repeated interaction between borrower and lender and are economically sizable: A one-standard-deviation increase in cultural distance, approximately the distance between Canada and the United States or between Japan and South Korea, is associated with a 6.5 basis point higher loan spread; the loan spread increases by about 23 basis points if the bank-firm match involves culturally more distant parties, for example, from Japan and the United States. We also find that cultural differences not only affect the relation between borrower and lender, but also hamper risk sharing between participant banks and culturally distant lead banks. This paper was accepted by Brad Barber, Teck Ho, and Terrance Odean, special issue editors.
Volume (Year): 58 (2012)
Issue (Month): 2 (February)
|Contact details of provider:|| Postal: |
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giannetti, Mariassunta & Ongena, Steven, 2012.
"“Lending by example”: Direct and indirect effects of foreign banks in emerging markets,"
Journal of International Economics,
Elsevier, vol. 86(1), pages 167-180.
- Giannetti, Mariassunta & Ongena, Steven, 2008. ""Lending by Example": Direct and Indirect Effects of Foreign Banks in Emerging Markets," CEPR Discussion Papers 6958, C.E.P.R. Discussion Papers.
- Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2007.
"The Importance of Trust for Investment: Evidence from Venture Capital,"
325, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
- Laura Bottazzi & Marco Da Rin & Thomas F. Hellmann, 2011. "The Importance of Trust for Investment: Evidence from Venture Capital," NBER Working Papers 16923, National Bureau of Economic Research, Inc.
- Berger, Allen N. & Klapper, Leora F. & Martinez Peria, Maria Soledad & Zaidi, Rida, 2006.
"Bank ownership type and banking relationships,"
Policy Research Working Paper Series
3862, The World Bank.
- Mark Grinblatt, 2001. "How Distance, Language, and Culture Influence Stockholdings and Trades," Journal of Finance, American Finance Association, vol. 56(3), pages 1053-1073, 06.
- Sergei Sarkissian, 2004. "The Overseas Listing Decision: New Evidence of Proximity Preference," Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 769-809.
- Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005.
"Private Credit in 129 Countries,"
NBER Working Papers
11078, National Bureau of Economic Research, Inc.
- Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2006.
"Does Culture Affect Economic Outcomes?,"
CEPR Discussion Papers
5505, C.E.P.R. Discussion Papers.
- Alesina, Alberto & La Ferrara, Eliana, 2005. "Ethnic Diversity and Economic Performance," Scholarly Articles 4553005, Harvard University Department of Economics.
- Darren J. Kisgen, 2006. "Credit Ratings and Capital Structure," Journal of Finance, American Finance Association, vol. 61(3), pages 1035-1072, 06.
- Jun Qian & Philip E. Strahan, 2007.
"How Laws and Institutions Shape Financial Contracts: The Case of Bank Loans,"
Journal of Finance,
American Finance Association, vol. 62(6), pages 2803-2834, December.
- Jun Qian & Philip E. Strahan, 2005. "How Law and Institutions Shape Financial Contracts: The Case of Bank Loans," NBER Working Papers 11052, National Bureau of Economic Research, Inc.
- Atif Mian, 2006. "Distance Constraints: The Limits of Foreign Lending in Poor Economies," Journal of Finance, American Finance Association, vol. 61(3), pages 1465-1505, 06.
- Jo�O A. C. Santos & Andrew Winton, 2008. "Bank Loans, Bonds, and Information Monopolies across the Business Cycle," Journal of Finance, American Finance Association, vol. 63(3), pages 1315-1359, 06.
- Roberto A. Weber & Colin F. Camerer, 2003. "Cultural Conflict and Merger Failure: An Experimental Approach," Management Science, INFORMS, vol. 49(4), pages 400-415, April.
- Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
- Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
- Kee-Hong Bae & Vidhan K. Goyal, 2009. "Creditor Rights, Enforcement, and Bank Loans," Journal of Finance, American Finance Association, vol. 64(2), pages 823-860, 04.
- Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
- Amir Sufi, 2007. "Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans," Journal of Finance, American Finance Association, vol. 62(2), pages 629-668, 04.
- Dennis, Steven A. & Mullineaux, Donald J., 2000. "Syndicated Loans," Journal of Financial Intermediation, Elsevier, vol. 9(4), pages 404-426, October.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:58:y:2012:i:2:p:365-383. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.