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Economic preferences for risk-taking and financing costs

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  • Delis, Manthos D.
  • Hasan, Iftekhar
  • Iosifidi, Maria
  • Tsoumas, Chris

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.

Suggested Citation

  • Delis, Manthos D. & Hasan, Iftekhar & Iosifidi, Maria & Tsoumas, Chris, 2023. "Economic preferences for risk-taking and financing costs," Journal of Corporate Finance, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:corfin:v:80:y:2023:i:c:s092911992300072x
    DOI: 10.1016/j.jcorpfin.2023.102423
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    1. Fangbin Qian & Yuanjie Pu & Yunfeng Shang, 2023. "Financing preferences and practices for developing sustainable exhibitions in Chinese companies," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.

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    More about this item

    Keywords

    Regional economic preferences; Risk-taking; Financing costs; Loan spreads; Bond spreads;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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