Do foreign lenders' national cultures affect loan pricing?

Pappas, Kostas ORCID: 0000-0003-3012-0858 and Xu, Alice Liang (2023) Do foreign lenders' national cultures affect loan pricing? INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, 28 (2). pp. 2006-2036.

Text IJFE-19-0530_manuscript.pdf - Author Accepted Manuscript Download (861kB) | Preview

Abstract

<jats:title>Abstract</jats:title><jats:p>We examine the role of foreign lenders' national cultures in the pricing of syndicated loans. Using Schwartz's cultural dimensions, embeddedness, and mastery, we find that foreign lenders domiciled in countries with higher embeddedness and mastery scores offer lower interest rates. These findings are robust to a battery of robustness tests and incremental to the effects of formal institutions. We also document that greater information asymmetry and foreign lenders' bargaining powers strengthen the impact of the foreign lenders' cultural values on loan pricing. An additional analysis shows that the intensity of loan covenants is also negatively related to the embeddedness and mastery scores of the foreign lenders' countries of domicile. Our findings suggest that cross‐border debt contracting decisions are not only determined by objective judgments about risk and return but also depend on the subjective assertion of values and beliefs guided by informal institutions, such as cultural norms. Cultural values can nurture and shape economic incentives and perceptions of sophisticated professional bankers in increasingly globalized market settings, even when the financial stakes are substantial.</jats:p>

Item Type:	Article
Uncontrolled Keywords:	cost of debt, cross-border lending, national culture, Schwartz, syndicated loan
Depositing User:	Symplectic Admin
Date Deposited:	11 Jan 2021 09:47
Last Modified:	04 Sep 2023 19:36
DOI:	10.1002/ijfe.2523
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3113137