IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-04990243.html
   My bibliography  Save this paper

Gambling preference, information risk, and the pricing of bank loans

Author

Listed:
  • Samar S Alharbi

    (Saudi Electronic University)

  • Md Al Mamun
  • Nader Atawnah

    (UAEU - United Arab Emirates University)

  • Sabri Boubaker

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

Our study explores the effect of local gambling preferences (LGP) on bank loan pricing, revealing that lenders impose significantly higher interest rates on firms situated in areas characterized by stronger gambling tendencies. Our results remain robust after conducting a series of sensitivity tests that account for firm-, county-, and loan-specific attributes, as well as several identification robustness checks. Specifically, our relocation analysis shows that firms moving to areas with higher (lower) gambling preferences experience higher (lower) costs of bank loans compared to control groups. Our channel analysis further reveals that local gambling preferences exacerbate a firm's information risk environment, as captured by poorer earnings quality, heightened earnings risk, and greater managerial concealment of bad news, resulting in higher borrowing costs. Finally, we observe that firms in areas with higher LGP encounter more stringent non-price loan terms. However, institutional ownership and the threat of takeovers significantly mitigate the adverse effect of LGP on bank loan pricing.

Suggested Citation

  • Samar S Alharbi & Md Al Mamun & Nader Atawnah & Sabri Boubaker, 2024. "Gambling preference, information risk, and the pricing of bank loans," Post-Print hal-04990243, HAL.
    • Handle: RePEc:hal:journl:hal-04990243
    DOI: 10.1080/1351847X.2024.2404088
    Note: View the original document on HAL open archive server: https://hal.science/hal-04990243v1
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04990243v1/document
    Download Restriction: no
    File URL: https://libkey.io/10.1080/1351847X.2024.2404088?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. MD Al Mamun & Balasingham Balachandran & Huu Nhan Duong & Ferdinand A Gul, 2021. "Are Corporate General Counsels in Top Management Effective Monitors? Evidence from Stock Price Crash Risk," European Accounting Review, Taylor & Francis Journals, vol. 30(2), pages 405-437, March.
    2. Hilary, Gilles & Hui, Kai Wai, 2009. "Does religion matter in corporate decision making in America?," Journal of Financial Economics, Elsevier, vol. 93(3), pages 455-473, September.
    3. Hasan, Iftekhar & Hoi, Chun Keung & Wu, Qiang & Zhang, Hao, 2017. "Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(3), pages 1017-1047, June.
    4. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
    5. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
    6. Cain, Matthew D. & McKeon, Stephen B. & Solomon, Steven Davidoff, 2017. "Do takeover laws matter? Evidence from five decades of hostile takeovers," Journal of Financial Economics, Elsevier, vol. 124(3), pages 464-485.
    7. repec:zbw:bofrdp:2014_003 is not listed on IDEAS
    8. Jin-hui Luo & Zeyue Huang & Xue Li & Xiaojing Lin, 2018. "Are Women CEOs Valuable in Terms of Bank Loan Costs? Evidence from China," Journal of Business Ethics, Springer, vol. 153(2), pages 337-355, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alharbi, Samar & Atawnah, Nader & Al Mamun, Md & Ali, Muhammad Jahangir, 2022. "Local culture and tax avoidance: Evidence from gambling preference behavior," Global Finance Journal, Elsevier, vol. 52(C).
    2. Jared Jennings & Jung Min Kim & Joshua Lee & Daniel Taylor, 2024. "Measurement error, fixed effects, and false positives in accounting research," Review of Accounting Studies, Springer, vol. 29(2), pages 959-995, June.
    3. Abakah, Alex Annan, 2024. "Does social capital matter in underwriter's fees?," Global Finance Journal, Elsevier, vol. 62(C).
    4. Chen, Yangyang & Duong, Huu Nhan & Goyal, Abhinav & Veeraraghavan, Madhu, 2023. "Social capital and the pricing of initial public offerings," Journal of Empirical Finance, Elsevier, vol. 74(C).
    5. Chia-Ying Chan & Iftekhar Hasan & Chih-Yung Lin, 2021. "Agency cost of CEO perquisites in bank loan contracts," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1221-1258, May.
    6. Zadeh, Mohammad Hendijani, 2023. "Stock liquidity and societal trust," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    7. Wang, Lu & Su, Zhong-qin & Fung, Hung-Gay & Jin, Hong-min & Xiao, Zuoping, 2021. "Do CEOs with academic experience add value to firms? Evidence on bank loans from Chinese firms," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    8. Duong, Huu Nhan & Khalifa, Mariem & Sheikhbahaei, Ali & Sualihu, Mohammed Aminu, 2024. "Corporate noncompliance: Do corporate violations affect bank loan contracting?," Journal of Banking & Finance, Elsevier, vol. 166(C).
    9. Chune Young Chung & Changhwan Choi & Do Thi Thanh Nhan, 2025. "CEO political orientation and loan contract," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-36, December.
    10. Huang, Huilin & Han, Seung Hun & Cho, Kyumin, 2021. "Co-opted Boards, Social Capital, and Risk-taking," Finance Research Letters, Elsevier, vol. 38(C).
    11. Cumming, Douglas J. & Javakhadze, David & Rajkovic, Tijana, 2024. "Unlocking Dividends: The impact of managerial social capital on international corporate payouts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 95(C).
    12. Francis, Bill & Hasan, Iftekhar & Liu, Liuling & Wu, Qiang & Zhao, Yijiang, 2021. "Financial analysts' career concerns and the cost of private debt," Journal of Corporate Finance, Elsevier, vol. 67(C).
    13. Jiraporn, Pornsit & Lee, Sang Mook & Shim, Hyeongsop, 2022. "Does social capital influence executive risk-taking incentives?," Finance Research Letters, Elsevier, vol. 49(C).
    14. Jha, Anand & Boudreaux, Christopher J. & Banerjee, Vasabjit, 2018. "Political leanings and social capital," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 72(C), pages 95-105.
    15. Ucar, Erdem, 2018. "Local creative culture and corporate innovation," Journal of Business Research, Elsevier, vol. 91(C), pages 60-70.
    16. Hasan, Mostafa Monzur & Habib, Ahsan, 2019. "Social capital and trade credit," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 158-174.
    17. Ferris, Stephen P. & Javakhadze, David & Rajkovic, Tijana, 2017. "CEO social capital, risk-taking and corporate policies," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 46-71.
    18. Costa, Mabel D. & Habib, Ahsan, 2023. "Local creative culture and audit fees," The British Accounting Review, Elsevier, vol. 55(2).
    19. Jha, Anand & Kim, YoungJun & Gutierrez-Wirsching, Sandra, 2019. "Formation of cross-border corporate strategic alliances: The roles of trust and cultural, institutional, and geographical distances," Journal of Behavioral and Experimental Finance, Elsevier, vol. 21(C), pages 22-38.
    20. Hoi, Chun Keung(Stan) & Wu, Qiang & Zhang, Hao, 2019. "Does social capital mitigate agency problems? Evidence from Chief Executive Officer (CEO) compensation," Journal of Financial Economics, Elsevier, vol. 133(2), pages 498-519.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-04990243. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.