Trust and the cost of debt financing

Yijun Meng*, Chao Yin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract / Description of output

This paper examines the relation between the level of trust in a country and the cost of debt. Using data on firms located in 22 countries over a 20-year period, we quantify the country trust level and find strong evidence that firms in countries with a higher level of societal trust have lower bond yield spreads. We also find that the impact of trust on the cost of debt is more pronounced in countries with a poor governance environment and during a time of financial crisis. Overall, our results highlight the role of social capital in shaping corporate financial behavior.
Original languageEnglish
Pages (from-to)58-73
JournalJournal of International Financial Markets, Institutions and Money
Volume59
Early online date27 Nov 2018
DOIs
Publication statusPublished - Mar 2019

Keywords / Materials (for Non-textual outputs)

  • societal trust
  • social capital
  • bond yield spreads
  • informal institutions

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