Do Cultural Differences between Contracting Parties Matter? Evidence from Syndicated Bank Loans

58 Pages Posted: 18 Dec 2008

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Yishay Yafeh

Hebrew University of Jerusalem - Jerusalem School of Business Administration; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2008

Abstract

We investigate whether cultural differences between professional decision-makers affect financial contracts in a large dataset of international syndicated bank loans. We find that lead banks offer smaller loans at a higher interest rate to more culturally distant borrowers. Furthermore, lead banks are more likely to require third-party guarantees as cultural distance with the borrower increases. The effects of cultural differences are not confined to the relation between borrower and lender and appear to hamper risk sharing within the syndicate as well. Ceteris paribus, participant banks fund smaller portions of syndicated loans led by culturally distant banks. These cultural biases are not significantly reduced by repeated interaction with the counterparty or with other agents in the foreign country.

Keywords: Behavioral Bias, Culture, Financial Contracts, Home Bias, Risk Sharing, Syndicated Loans

JEL Classification: F4, G21, G3

Suggested Citation

Giannetti, Mariassunta and Yafeh, Yishay, Do Cultural Differences between Contracting Parties Matter? Evidence from Syndicated Bank Loans (October 2008). CEPR Discussion Paper No. DP7020. Available at SSRN: https://ssrn.com/abstract=1311144

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Yishay Yafeh

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem 91905
Israel
+972 2 588 3081 (Phone)
+972 2 588 1341 (Fax)

HOME PAGE: http://bschool.huji.ac.il/facultye/yafeh/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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