Abstract

http://ssrn.com/abstract=1873803
 
 

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Firm Reputation and the Cost of Debt Capital


Deniz Anginer


Virginia Tech Pamplin Business School

Sattar Mansi


Virginia Tech

A. Joseph Warburton


Syracuse University - College of Law; Syracuse University - Whitman School of Management

Celim Yildizhan


University of Georgia - C. Herman and Mary Virginia Terry College of Business

June 2, 2015


Abstract:     
We examine the relation between firm reputation and the cost of debt financing. We posit that corporate reputation represents “soft information” not captured by balance sheet variables, which is nonetheless valuable to lenders. Using Fortune magazine’s survey of company reputation, we find an inverse relation between a company’s reputation and its bond credit spreads. We also find that firms with high reputation face less stringent covenants and are less likely to be the target of SEC fraud investigations. Further testing shows that bad reputation is a good ex ante predictor of corporate failure. Our study provides evidence that firm reputation is an important consideration in the pricing of corporate public debt.

Number of Pages in PDF File: 42

Keywords: Cost of debt and firm reputation, cost of capital and firm reputation, credit risk and firm reputation, cost of debt and firm intangibles, covenant restrictions and firm reputation, fraud and firm reputation, bankruptcy risk and firm reputation

JEL Classification: G11, G12, G14, G32, G33, M4, L14, D82


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Date posted: June 29, 2011 ; Last revised: June 5, 2015

Suggested Citation

Anginer, Deniz and Mansi, Sattar and Warburton, A. Joseph and Yildizhan, Celim, Firm Reputation and the Cost of Debt Capital (June 2, 2015). Available at SSRN: http://ssrn.com/abstract=1873803 or http://dx.doi.org/10.2139/ssrn.1873803

Contact Information

Deniz Anginer
Virginia Tech Pamplin Business School ( email )
1818 H Street, NW
Washington, DC 20433
United States
Sattar Mansi (Contact Author)
Virginia Tech ( email )
A. Joseph Warburton
Syracuse University - College of Law ( email )
Syracuse, NY 13244-1030
United States
Syracuse University - Whitman School of Management ( email )
Syracuse, NY
United States
Celim Yildizhan
University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )
Brooks Hall
Athens, GA 30602-6254
United States
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