Firm Reputation and the Cost of Debt Capital

41 Pages Posted: 29 Jun 2011 Last revised: 22 Mar 2016

Deniz Anginer

World Bank Research

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 9, 2016

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 while controlling for the impact of firm-level variables, we find an inverse relation between a company’s reputation and its bond (bank loan) 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 (private) debt.

Keywords: firm reputation, firm intangibles, covenant restrictions, fraud, bankruptcy risk, cost of debt

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

Suggested Citation

Anginer, Deniz and Mansi, Sattar and Warburton, A. Joseph and Yildizhan, Celim, Firm Reputation and the Cost of Debt Capital (March 9, 2016). Available at SSRN: https://ssrn.com/abstract=1873803 or http://dx.doi.org/10.2139/ssrn.1873803

Deniz Anginer

World Bank Research ( email )

1818 H Street, NW
Washington, DC 20433
United States

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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