Economic Preferences Over Risk-Taking and Corporate Finance

57 Pages Posted: 8 Mar 2021

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Chris Tsoumas

Hellenic Open University

Maria Iosifidi

Montpellier Business School

Date Written: February 27, 2021

Abstract

We contend that economic preferences over risk-taking in different subnational regions worldwide affect fundamental aspects of firms’ corporate financing, namely financing costs and capital structure. We study this hypothesis, by hand-matching firms’ regions worldwide with the corresponding regional economic risk-taking preferences. Our baseline results show that credit and bond pricing increase with higher risk-taking preferences, whereas such preferences yield lower ratios of book leverage and short-term debt. We backup our baseline results with an instrumental variables approach, which is based on the premise that high-yield agricultural societies in the pre-industrial era exhibit low risk-taking preferences.

Keywords: Economic preferences; Risk-taking; Financing costs; Loan spreads; Bond spreads; Capital structure

JEL Classification: G21; G32; G41; Z13

Suggested Citation

Delis, Manthos D. and Hasan, Iftekhar and Tsoumas, Chris and Iosifidi, Maria, Economic Preferences Over Risk-Taking and Corporate Finance (February 27, 2021). Available at SSRN: https://ssrn.com/abstract=3794227 or http://dx.doi.org/10.2139/ssrn.3794227

Manthos D. Delis (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Chris Tsoumas

Hellenic Open University ( email )

Parodos Aristotelous 18
26335 Patra
Greece

HOME PAGE: http://www.eap.gr/index_en.php

Maria Iosifidi

Montpellier Business School ( email )

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