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Impacts of trust on the cost of debt financing: The perspectives of in-group trust and out-group trust

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  • Wang, Yidi
  • Gu, Hongmei

Abstract

This paper explores the impact of different types of trust on the cost of debt financing. Using trust data from the World Values Survey (WVS) and data on the listed companies in China, we find that in-group (out-group) trust has a positive (negative) impact on the cost of debt financing. We also establish that better corporate performance strengthens the impacts of the two types of trust, and higher external supervision weakens the impact of out-group trust. Further investigation finds that in-group (out-group) trust significantly impacts companies with weak (strong) financing constraints.

Suggested Citation

  • Wang, Yidi & Gu, Hongmei, 2024. "Impacts of trust on the cost of debt financing: The perspectives of in-group trust and out-group trust," Finance Research Letters, Elsevier, vol. 62(PA).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324001818
    DOI: 10.1016/j.frl.2024.105151
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    2. Yang, Qianqian & Ye, Zihan & Zhou, Haizhen & Mo, Weiqiao, 2024. "Rely on whom you trust? Trust and financial planning for retirement," Finance Research Letters, Elsevier, vol. 69(PA).

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    More about this item

    Keywords

    Trust; The cost of debt financing; Corporate performance; External supervision;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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