Impact of Ethical Behavior on Syndicated Loan Rates

24 Pages Posted: 17 Feb 2009 Last revised: 29 Aug 2014

See all articles by Moshe Kim

Moshe Kim

University of Haifa - Department of Economics

Jordi Surroca

Universidad Carlos III de Madrid - Department of Business Administration

Josep A. Tribo

Stevens Institute of Technology

Date Written: August 15, 2014

Abstract

This paper shows that borrowers’ ethical behavior leads lending banks to loosen financing conditions when setting loan rates. We advance the banking literature by stressing that the previous financing loosening is enhanced when there is similarity of lenders and borrowers along their ethical domain given that such similarity brings about familiarity and trust in non-opportunistic behavior between them, thereby contributing to lower information frictions. Unique data composed of 12,545 syndicated loan facilities from 19 countries for the period 2003-2007 indicate a 24.8% reduction in the mean spread associated with an increase of one standard deviation in the degree of borrowers’ ethical behavior from its mean value. Such reduction is enhanced to 37.6% when lenders also behave in an ethical way. Results withstand a battery of robustness tests including the use of alternative databases that capture the effect of the 2008 financial crisis, financing alternatives such as equity financing as well as nonparametric estimations

Keywords: Cost of Capital, Corporate Social Responsibility, Lenders

JEL Classification: G32, M14

Suggested Citation

Kim, Moshe and Surroca, Jordi and Tribo Gine, Josep Antonio, Impact of Ethical Behavior on Syndicated Loan Rates (August 15, 2014). Kim, M., Surroca, J. & Tribó, J. (2014) "Impact of Ethical Behavior on Syndicated Loan Rates" Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1343863 or http://dx.doi.org/10.2139/ssrn.1343863

Moshe Kim

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel
(972) 4 8240115 (Phone)
(972)4-8240059 (Fax)

Jordi Surroca

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

HOME PAGE: http://www.uc3m.es/uc3m/dpto/EMP/profesor/ijordi.htm

Josep Antonio Tribo Gine (Contact Author)

Stevens Institute of Technology ( email )

Hoboken, NJ 07030
United States
9292708869 (Phone)
07030 (Fax)

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