The Effects of Corporate and Country Sustainability Characteristics on the Cost of Debt: An International Investigation

40 Pages Posted: 2 Dec 2014

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; Stockholm School of Economics - Mistra Financial Systems (MFS); European Commission's Technical Expert Group for Sustainable Finance

Ioannis Oikonomou

University of Reading - ICMA Centre

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Michael Schröder

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2014

Abstract

We investigate the relationship between corporate and country sustainability on the cost of bank loans. We look into 470 loan agreements signed between 2005 and 2012 with borrowers based on 28 different countries across the world and operating in all major industries. Our principal findings reveal that country sustainability related to both social and environmental frameworks has a statistically and economically impactful effect on direct financing of economic activity. An increase of one unit in country sustainability scores is associated with an average decrease in the costs of debt by 64 basis points. Our analysis shows that the environmental dimension of a country’s institutional framework is approximately two times as impactful as the societal dimension when it comes to determining the cost of corporate loans. On the other hand, we find no conclusive evidence that firm-level sustainability influences the interest rates charged to borrowing firms by banks.

Keywords: corporate social responsibility, CSR, CSP, sustainability, banking, financial contracts, culture

JEL Classification: G14, G32, M14

Suggested Citation

Hoepner, Andreas G. F. and Oikonomou, Ioannis and Scholtens, Bert and Schröder, Michael, The Effects of Corporate and Country Sustainability Characteristics on the Cost of Debt: An International Investigation (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=2532431 or http://dx.doi.org/10.2139/ssrn.2532431

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

Stockholm School of Economics - Mistra Financial Systems (MFS) ( email )

MISUM
Box 6501, SE-113 83 Stockholm
Sweden

European Commission's Technical Expert Group for Sustainable Finance ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Ioannis Oikonomou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Michael Schröder

ZEW – Leibniz Centre for European Economic Research - International Finance and Financial Management ( email )

L 7,1
P.O. Box 10 34 43
D-68034 Mannheim
Germany
+49 621 1235 368 (Phone)
+49 621 1235 223 (Fax)

HOME PAGE: http://www.zew.de/en/team/msc/?cHash=c9507802336d8f7db96848c539ed2f89

Register to save articles to
your library

Register

Paper statistics

Downloads
59
rank
160,231
Abstract Views
808
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information