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

33 Pages Posted: 21 Mar 2016

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: January-February 2016

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 in 28 different countries across the world and operating in all major industries. Our principal findings reveal that country sustainability, relating 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 a country's sustainability score is associated with an average decrease in the cost of debt by 64 basis points. Our international analysis shows that the environmental dimension of a country's institutional framework is approximately twice as impactful as the social 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. Our main findings survive a battery of robustness tests and additional analyses concerning subsamples, alternative sustainability metrics and the effects of financial crisis.

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

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 (January-February 2016). Journal of Business Finance & Accounting, Vol. 43, Issue 1-2, pp. 158-190, 2016, Available at SSRN: https://ssrn.com/abstract=2752185 or http://dx.doi.org/10.1111/jbfa.12183

Andreas G. F. Hoepner (Contact Author)

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

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)

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