Lenders’ Culture and the Pricing of US Public Corruption in Corporate Loans

41 Pages Posted: 19 Feb 2021

See all articles by Theodora Bermpei

Theodora Bermpei

University of Sussex - School of Business, Management and Economics

Christine Christofi-Hau

Southampton Business School; Imperial College Business School

Antonios Nikolaos Kalyvas

Department of Banking and Finance, Southampton Business School, University of Southampton

Date Written: December 01, 2020

Abstract

We investigate how the cultural heritage of the CEOs of banks acting as lead lenders in the US syndicated loan market shapes the relationship between public corruption and the cost of bank loans. We find strong evidence that banks led by CEOs originating from higher uncertainty avoidance societies penalize less sharply, in terms of the cost of bank loans, the presence of high local public corruption in the state of the borrowing firms. We find some similar evidence for banks led by CEOs that trace their origins to more individualistic societies. These results are robust to several tests that address concerns such as the matching between borrowing firms from states with high corruption and the cultural heritage of bank CEOs, omitted variable issues, endogeneity, and after controlling for several CEO and bank characteristics. These findings are consistent with the view that certain cultural heritage traits prompt tolerance for the risks of corruption and show that the pricing of institutional quality in corporate loans is conditional on banks led by CEOs with such traits.

Keywords: CEOs, cultural heritage, public corruption, cost of bank loans

JEL Classification: G21, Z13, D73

Suggested Citation

Bermpei, Theodora and Christofi-Hau, Christine and Kalyvas, Antonios Nikolaos, Lenders’ Culture and the Pricing of US Public Corruption in Corporate Loans (December 01, 2020). Available at SSRN: https://ssrn.com/abstract=3750856 or http://dx.doi.org/10.2139/ssrn.3750856

Theodora Bermpei

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

Christine Christofi-Hau

Southampton Business School ( email )

Highfield Campus
University Road
Southampton, SO17 1LP
United Kingdom

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London, SW7 2AZ
United Kingdom

Antonios Nikolaos Kalyvas (Contact Author)

Department of Banking and Finance, Southampton Business School, University of Southampton ( email )

Southampton, SO17 1BJ
United Kingdom

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