Earthly Reward to the Religious: Religiosity and the Cost of Public and Private Debt
59 Pages Posted: 28 Sep 2013 Last revised: 1 Oct 2017
Date Written: September 10, 2017
We document that a firm’s culture — specifically, its religiosity — affects its cost of debt. Firms in higher-religiosity counties have higher credit ratings and lower debt costs. The impact of religiosity is stronger for firms with greater information asymmetry and during recessions. Further, religiosity has additional explanatory power for the cost of bank loans (but not the cost of public bonds) beyond its impact through ratings. This supports the argument that banks have superior abilities in pricing soft information, such as corporate culture. Finally, the impact of religiosity is stronger when the lender is a small bank.
Keywords: corporate culture, religiosity, credit rating, cost of debt, bank loan, information asymmetry
JEL Classification: G12, G21, Z12
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