Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds

47 Pages Posted: 29 Sep 2015 Last revised: 29 Oct 2015

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Chun Keung (Stan) Hoi

Rochester Institute of Technology (RIT) - Department of Accounting and Finance

Qiang Wu

The Hong Kong Polytechnic University

Hao Zhang

Rochester Institute of Technology (RIT) - Saunders College of Business

Date Written: September 29, 2015

Abstract

We find that firms headquartered in US counties with higher levels of social capital incur lower bank loan spreads. This finding is robust to using organ donation as an alternative social-capital measure and incremental to the effects of religiosity, corporate social responsibility, and tax avoidance. We identify the causal relation using companies with a social-capital-changing headquarter relocation. We also find that high-social-capital firms face loosened nonprice loan terms, incur lower at-issue bond spreads, and prefer bonds over loans. We conclude that debt holders perceive social capital as providing environmental pressure constraining opportunistic firm behaviors in debt contracting.

Keywords: Social capital, Cooperative norm, Moral hazard, Cost of bank loans, Public bonds

JEL Classification: G21, G32, Z13

Suggested Citation

Hasan, Iftekhar and Hoi, Chun Keung (Stan) and Wu, Qiang and Zhang, Hao, Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds (September 29, 2015). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2667172 or http://dx.doi.org/10.2139/ssrn.2667172

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Chun Keung (Stan) Hoi

Rochester Institute of Technology (RIT) - Department of Accounting and Finance ( email )

Saunders College of Business
105 Lomb Memorial Drive
Rochester, NY 14623-5608
United States
585-475-2718 (Phone)
585-475-6920 (Fax)

Qiang Wu

The Hong Kong Polytechnic University ( email )

Hao Zhang (Contact Author)

Rochester Institute of Technology (RIT) - Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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