Journal of Corporate Finance Vol. 80 2023
Economic preferences for risk-taking and financing costs
Abstract
We hypothesize and empirically establish that economic preferences for risk-taking in different subnational regions affect firm financing costs. We study this hypothesis by hand-matching firms' regions worldwide with the corresponding regional economic risk-taking preferences. We first show that higher regional risk-taking is positively associated with several measures of firm risk and investments. Subsequently, our baseline results show that credit and bond pricing increase when risk-taking preferences increase. For the loan of average size and maturity a one-standard-deviation increase in regional risk-taking increases interest expense by $0.54 million USD. We also find that these results are demand (firm)-driven and stronger for firms with more local shareholders.
- DOI
- 10.1016/j.jcorpfin.2023.102423
- Volume
- 80
- Pages
- 102423
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib