The Effects of Corporate and Country Sustainability Characteristics on the Cost of Debt: An International Investigation

Journal of Business Finance & Accounting

40 Pages Posted: 2 Dec 2014 Last revised: 30 Sep 2023

See all articles by Andreas G. F. Hoepner

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission - DG FISMA

Ioannis Oikonomou

University of Reading - ICMA Centre

Bert Scholtens

University of Groningen - Department of Finance & Accounting

Michael Schröder

affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2014

Abstract

We investigate the relationship between corporate and country sustainability on the cost of bank loans. We look into 470 loan agreements signed between 2005 and 2012 with borrowers based on 28 different countries across the world and operating in all major industries. Our principal findings reveal that country sustainability related to both social and environmental frameworks has a statistically and economically impactful effect on direct financing of economic activity. An increase of one unit in country sustainability scores is associated with an average decrease in the costs of debt by 64 basis points. Our analysis shows that the environmental dimension of a country’s institutional framework is approximately two times as impactful as the societal dimension when it comes to determining the cost of corporate loans. On the other hand, we find no conclusive evidence that firm-level sustainability influences the interest rates charged to borrowing firms by banks.

Keywords: corporate social responsibility, CSR, CSP, sustainability, banking, financial contracts, culture

JEL Classification: G14, G32, M14

Suggested Citation

Hoepner, Andreas G. F. and Oikonomou, Ioannis and Scholtens, Bert and Schröder, Michael, The Effects of Corporate and Country Sustainability Characteristics on the Cost of Debt: An International Investigation (December 1, 2014). Journal of Business Finance & Accounting, Available at SSRN: https://ssrn.com/abstract=2532431 or http://dx.doi.org/10.2139/ssrn.2532431

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission - DG FISMA ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Ioannis Oikonomou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Bert Scholtens

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Michael Schröder

affiliation not provided to SSRN

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