TY - JOUR
T1 - Environmental, social, and governance incidents and bank loan contracts
AU - He, Ruoyu
AU - Chen, Xueli
AU - Chen, Cheng
AU - Zhai, Jianqiao
AU - Cui, Lixin
N1 - Publisher Copyright:
© 2021 by the authors. Licensee MDPI, Basel, Switzerland.
PY - 2021/2/2
Y1 - 2021/2/2
N2 - We investigated how a borrower’s adverse environmental, social, and governance incidents affect bank loan contracts. Using a sample of 2001 publicly traded US firms during the period from 2007 to 2016, we found that loans initiated after the occurrence of a firm’s environmental, social, or governance-related incident have a significantly higher spread and a lower loan size. Our sample contained firms covered by RepRisk, as RepRisk began tracking firms’ environmental, social, and governance-related incidents in January 2007. Further analysis showed that the influence on loan contracts is more pronounced in younger firms, which verifies that environmental, social, and governance-related incidents have significant influence and higher information asymmetry. In addition, a test of the timing of the environmental, social, and governance-related incidents in a year further strengthened our conclusions. Moreover, the impact of environmental, social, and governance-related incidents on loan contracts was also reflected in other non-monetary items, such as the duration of a loan contract, requests for collateral, and the frequency of covenants, as well as the lender structure. This paper adds to the discussion on the economic effects of environmental, social, and governance-related incidents on bank contracts. More broadly, our results contribute to the public policy discussion on the role banks should play in the transition to a low-carbon and sustainable economy.
AB - We investigated how a borrower’s adverse environmental, social, and governance incidents affect bank loan contracts. Using a sample of 2001 publicly traded US firms during the period from 2007 to 2016, we found that loans initiated after the occurrence of a firm’s environmental, social, or governance-related incident have a significantly higher spread and a lower loan size. Our sample contained firms covered by RepRisk, as RepRisk began tracking firms’ environmental, social, and governance-related incidents in January 2007. Further analysis showed that the influence on loan contracts is more pronounced in younger firms, which verifies that environmental, social, and governance-related incidents have significant influence and higher information asymmetry. In addition, a test of the timing of the environmental, social, and governance-related incidents in a year further strengthened our conclusions. Moreover, the impact of environmental, social, and governance-related incidents on loan contracts was also reflected in other non-monetary items, such as the duration of a loan contract, requests for collateral, and the frequency of covenants, as well as the lender structure. This paper adds to the discussion on the economic effects of environmental, social, and governance-related incidents on bank contracts. More broadly, our results contribute to the public policy discussion on the role banks should play in the transition to a low-carbon and sustainable economy.
KW - Bank loan
KW - Environmental, social, and governance incidents
KW - Loan cost
KW - Loan size
UR - http://www.scopus.com/inward/record.url?scp=85100893998&partnerID=8YFLogxK
U2 - 10.3390/su13041885
DO - 10.3390/su13041885
M3 - Article
AN - SCOPUS:85100893998
SN - 2071-1050
VL - 13
SP - 1
EP - 19
JO - Sustainability (Switzerland)
JF - Sustainability (Switzerland)
IS - 4
M1 - 1885
ER -