Religiosity and the Cost of Debt

51 Pages Posted: 4 Dec 2018 Last revised: 3 Feb 2021

See all articles by Hanwen Chen

Hanwen Chen

University of International Business and Economics

Henry He Huang

Yeshiva University - Sy Syms School of Business

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Chong Wang

The Hong Kong Polytechnic University

Date Written: November 1, 2015

Abstract

In a cross-country setting, we document that stronger religiosity is associated with lower loan interest spread. In addition, we show that this negative association is more pronounced in countries with weaker creditor rights, suggesting that religious values play a more significant role in constraining opportunistic behavior in a weaker legal environment. Our analysis reveals that stronger religiosity is also related to other favorable terms in loan contracting, such as larger facility amount, use of accounting-based performance pricing, and lower upfront fee. Corroborating our cross-country findings, we also show that in the U.S. setting, firms in regions with stronger religiosity enjoy lower loan interest spread. Our study contributes to understanding the important role religiosity plays in debt financing.

Suggested Citation

Chen, Hanwen and Huang, Henry and Lobo, Gerald J. and Wang, Chong, Religiosity and the Cost of Debt (November 1, 2015). Journal of Banking and Finance, Vol. 70, No. September, 2016, Available at SSRN: https://ssrn.com/abstract=3281716

Hanwen Chen

University of International Business and Economics ( email )

10# Huixin East Street,Chaoyang District
Beijing, Beijing 100029
China

Henry Huang (Contact Author)

Yeshiva University - Sy Syms School of Business ( email )

New York, NY 10033
United States

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Chong Wang

The Hong Kong Polytechnic University ( email )

Hong Kong
Hong Kong

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