This paper investigates whether banks value the presence of prosocial CEOs when designing loan contracts. Using personal charitable donation behavior to identify prosocial CEOs, we find robust evidence that the presence of prosocial CEOs is negatively related to firms' cost of debt. We address endogeneity concerns by employing a difference-in-differences setting that exploits exogenous CEO turnover events. Moreover, we show that the presence of prosocial CEOs mitigates the conflicts of interest between shareholders and creditors, thereby reduces the agency cost of debt. In addition, we find that the effect of prosocial CEOs also extends to non-price loan contract terms. Finally, we show that the presence of prosocial CEOs has positive implications for firm value and is associated with lower default risk.

Dual holders, financial institutions that simultaneously hold the debt and equity claims of the same firms, increase corporate tax avoidance. The positive effect is more pronounced in firms with greater ex-ante risk-taking managerial incentives and higher short-term investor ownership. We also find that tax avoidance is associated with a lower cost of debt in the presence of dual holders. We suggest that after-tax awards are a mechanism through which dual holders influence corporate tax strategies. The evidence demonstrates that dual holding increases tax avoidance through mitigating shareholder–creditor conflicts. Our results are robust to endogeneity concerns and alternative tax avoidance measures.