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Trust and the cost of debt financing

Meng, Y. and Yin, C. (2019) Trust and the cost of debt financing. Journal of International Financial Markets, Institutions and Money, 59. pp. 58-73. ISSN 1042-4431

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To link to this item DOI: 10.1016/j.intfin.2018.11.009

Abstract/Summary

This paper examines the relation between the level of trust in a country and the cost of debt. Using data on firms located in 22 countries over a 20-year period, we quantify the country trust level and find strong evidence that firms in countries with a higher level of societal trust have lower bond yield spreads. We also find that the impact of trust on the cost of debt is more pronounced in countries with a poor governance environment and during a time of financial crisis. Overall, our results highlight the role of social capital in shaping corporate financial behavior.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:80885
Publisher:Elsevier

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