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

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.

Published on 25th November 2014
Authors Andreas Hoepner ICMA Centre, Henley Business School, University of Reading Ioannis Oikonomou ICMA Centre, Henley Business School, University of Reading Bert Scholtens Department of Economics, Econometrics and Finance, University of Groningen and School of Management, University of St Andrews Michael Schröder SEW Mannheim, International Finance and Financial Management and Frankfurt School of Finance & Management
Series Reference 2014-14

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