Environmental Regulation and the Cost of Bank Loans: International Evidence

70 Pages Posted: 1 Apr 2019 Last revised: 2 Nov 2020

See all articles by Amirhossein Fard

Amirhossein Fard

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American)

Siamak Javadi

University of Texas - Rio Grande Valley

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship

Date Written: March 7, 2019

Abstract

Using a sample of 27 countries between 1990 and 2014, we find that banks charge higher interest rates and adjust other contractual features of their loans when lending to firms facing more stringent environmental regulations. Our evidence suggests that lenders’ concerns about the increase in environmental liabilities resulting from regulations is driving the results. Specifically, we show that firms facing such regulations have fewer participants in their loan syndicates, higher bankruptcy risk, and lower credit ratings, despite reducing their leverage. Overall, our results indicate that the observed higher loan spread is the result of environmentally sensitive lending practices by banks.

Keywords: Environmental Regulations; Business Risk; Bank Loan Contracting

JEL Classification: G21; G32; Q51

Suggested Citation

Fard, Amirhossein and Javadi, Siamak and Kim, Incheol, Environmental Regulation and the Cost of Bank Loans: International Evidence (March 7, 2019). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3348758 or http://dx.doi.org/10.2139/ssrn.3348758

Amirhossein Fard (Contact Author)

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) ( email )

1201 W. University Drive
Edinburg, TX 78541
United States

Siamak Javadi

University of Texas - Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX 78539
United States

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship ( email )

1201 W University Dr
Edinburg, TX 78539
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
751
rank
361,947
PlumX Metrics