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The Impact of Corporate Reputation on Cost of Debt: A Panel Data Analysis of Indian Listed Firms

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  • Amanpreet Kaur

    (Department of Finance, Australian Institute of Business, Adelaide 5000, Australia)

  • Mahesh Joshi

    (Department of Financial Planning and Tax, RMIT University, Melbourne 3000, Australia)

  • Gagandeep Singh

    (Progressive Careers, Amritsar 143001, India)

  • Sharad Sharma

    (Department of Financial Planning and Tax, RMIT University, Melbourne 3000, Australia)

Abstract

The study analyses the impact of financial reputation on the cost of debt financing for Indian companies. In doing so, panel regression analysis is performed using firm-specific data on 395 Indian listed firms covering 2002–2017. The paper uses market capitalization as a benchmark of financial reputation. For robustness check, excess of market value over book value is also used as a proxy of financial reputation. The study found that the reputation of a firm in financial markets plays a vital role in determining the cost of financing. The results provide evidence supporting a significant negative relationship between financial reputation and the cost of debt. The findings provide motivation for corporate managers to invest in reputation-building activities to reduce the cost of borrowing. The relevance of reputation in lowering the cost of debt capital has garnered limited attention, especially in emerging economies like India. This study is a preliminary attempt to link two strands of research in the Indian context: financial reputation and the cost of debt.

Suggested Citation

  • Amanpreet Kaur & Mahesh Joshi & Gagandeep Singh & Sharad Sharma, 2024. "The Impact of Corporate Reputation on Cost of Debt: A Panel Data Analysis of Indian Listed Firms," JRFM, MDPI, vol. 17(8), pages 1-14, August.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:8:p:367-:d:1458759
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    References listed on IDEAS

    as
    1. Cemil Kuzey & Amal Hamrouni & Ali Uyar & Abdullah S. Karaman, 2024. "Social reputation, loan contracting and governance mechanisms," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 32(3), pages 502-531, April.
    2. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
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    6. Yijing Wang & Guido Berens, 2015. "The Impact of Four Types of Corporate Social Performance on Reputation and Financial Performance," Journal of Business Ethics, Springer, vol. 131(2), pages 337-359, October.
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