Firm Reputation and the Cost of Debt Capital

Posted: 18 Mar 2012 Last revised: 22 May 2017

See all articles by Deniz Anginer

Deniz Anginer

Simon Fraser University (SFU)

Sattar Mansi

Virginia Polytechnic Institute & State University

A. Joseph Warburton

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

Çelim Yıldızhan

Koç University

Multiple version iconThere are 2 versions of this paper

Date Written: 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. 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.

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

Suggested Citation

Anginer, Deniz and Mansi, Sattar and Warburton, A. Joseph and Yıldızhan, Çelim, Firm Reputation and the Cost of Debt Capital (June 2, 2015). Available at SSRN: https://ssrn.com/abstract=2024181 or http://dx.doi.org/10.2139/ssrn.2024181

Deniz Anginer

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Sattar Mansi (Contact Author)

Virginia Polytechnic Institute & State University ( 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

Çelim Yıldızhan

Koç University ( email )

College of Administrative Sciences and Economics
Rumeli Feneri Yolu, Sariyer
Istanbul, 34450
Turkey

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