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Impact of social drinking culture on the cost of bank loans: Rent-seeking or loan-contracting efficiency

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  • Tan, Jianhua
  • Wang, Zhan
  • Chan, Kam C.

Abstract

This study investigates whether social drinking culture (SDC), as an informal institution, impacts the cost of bank loans to a firm. Studies suggest that SDC influences individual behavior by fostering interpersonal relationships. Few studies have explored the impact of SDC on corporate borrowing. We argue that executives use SDC to obtain bank loans at lower interest rates. However, the mechanism remains unclear. Firms can leverage SDC to engage in rent-seeking from or improve communication with lenders. We tested the hypothesis and the underlying mechanism on a sample of Chinese firms from 2011 to 2020. Results suggest that the SDC lowers bank loan rates for firms and supports the rent-seeking mechanism. Furthermore, firms in strong SDC regions have larger sizes, longer maturities, and more non-collateralized loans but perform poorly in corporate and bank loans. Therefore, strong SDC is used by firms to engage in rent-seeking borrowing, resulting in credit resource misallocation.

Suggested Citation

  • Tan, Jianhua & Wang, Zhan & Chan, Kam C., 2024. "Impact of social drinking culture on the cost of bank loans: Rent-seeking or loan-contracting efficiency," Economic Modelling, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:ecmode:v:141:y:2024:i:c:s0264999324002694
    DOI: 10.1016/j.econmod.2024.106912
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    More about this item

    Keywords

    Social drinking culture; The cost of bank loans; Information asymmetry; Rent-seeking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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