Trust and the Cost of Bank Loans: International Evidence

25 Pages Posted: 31 May 2019

See all articles by Celia Alvarez-Botas

Celia Alvarez-Botas

Universidad de Oviedo

Victor González

Universidad de Oviedo - Business Administration

Date Written: May 9, 2019

Abstract

This paper analyses the effect of trust on bank loan spreads for a sample of 16,324 loans from 36 countries over the period 2003-2013, considering not just the role of trust but also the interaction between trust and the legal protection of property rights and how its effect is moderated by the economic development of the country. The results show that greater trust tend to reduce the bank loan spreads when the degree of the protection of property rights is weak in line with trust and legal protection being alternative mechanisms for reducing the cost of debt. Regarding with the degree of economic development, the results show that both trust and legal protection have a greater influence in countries with a lower degree of economic development.

Keywords: Trust, Loan Spread, Legal Enforcement

JEL Classification: G3

Suggested Citation

Alvarez-Botas, Celia and González Méndez, Víctor M., Trust and the Cost of Bank Loans: International Evidence (May 9, 2019). Available at SSRN: https://ssrn.com/abstract=3385401 or http://dx.doi.org/10.2139/ssrn.3385401

Celia Alvarez-Botas (Contact Author)

Universidad de Oviedo ( email )

Avenida del Cristo s/n
33071-Oviedo
Asturias
Spain
985102820 (Phone)

Víctor M. González Méndez

Universidad de Oviedo - Business Administration ( email )

Avenida del Cristo s/n
33071-Oviedo
Asturias
Spain
+34 985102826 (Phone)
+34 985103708 (Fax)

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