Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds
64 Pages Posted: 23 Nov 2015 Last revised: 8 Oct 2017
Date Written: November 20, 2015
We find that firms headquartered in U.S. 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
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