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Gambling preference, information risk, and the pricing of bank loans

Author

Listed:
  • Samar S Alharbi

    (Saudi Electronic University)

  • Md Al Mamun
  • Nader Atawnah

    (UAEU - United Arab Emirates University)

  • Sabri Boubaker

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

Our study explores the effect of local gambling preferences (LGP) on bank loan pricing, revealing that lenders impose significantly higher interest rates on firms situated in areas characterized by stronger gambling tendencies. Our results remain robust after conducting a series of sensitivity tests that account for firm-, county-, and loan-specific attributes, as well as several identification robustness checks. Specifically, our relocation analysis shows that firms moving to areas with higher (lower) gambling preferences experience higher (lower) costs of bank loans compared to control groups. Our channel analysis further reveals that local gambling preferences exacerbate a firm's information risk environment, as captured by poorer earnings quality, heightened earnings risk, and greater managerial concealment of bad news, resulting in higher borrowing costs. Finally, we observe that firms in areas with higher LGP encounter more stringent non-price loan terms. However, institutional ownership and the threat of takeovers significantly mitigate the adverse effect of LGP on bank loan pricing.

Suggested Citation

  • Samar S Alharbi & Md Al Mamun & Nader Atawnah & Sabri Boubaker, 2024. "Gambling preference, information risk, and the pricing of bank loans," Post-Print hal-04990243, HAL.
    • Handle: RePEc:hal:journl:hal-04990243
    DOI: 10.1080/1351847X.2024.2404088
    Note: View the original document on HAL open archive server: https://hal.science/hal-04990243v1
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    References listed on IDEAS

    as
    1. MD Al Mamun & Balasingham Balachandran & Huu Nhan Duong & Ferdinand A Gul, 2021. "Are Corporate General Counsels in Top Management Effective Monitors? Evidence from Stock Price Crash Risk," European Accounting Review, Taylor & Francis Journals, vol. 30(2), pages 405-437, March.
    2. Hasan, Iftekhar & Hoi, Chun Keung & Wu, Qiang & Zhang, Hao, 2017. "Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(3), pages 1017-1047, June.
    3. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
    4. Hasan, Iftekhar & Hoi, Chun Keung (Stan) & Wu, Qiang & Zhang, Hao, 2014. "Beauty is in the eye of the beholder: The effect of corporate tax avoidance on the cost of bank loans," Journal of Financial Economics, Elsevier, vol. 113(1), pages 109-130.
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    6. repec:zbw:bofrdp:2014_003 is not listed on IDEAS
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