Journal article 52 views 13 downloads
Gambling preference, information risk, and the pricing of bank loans
The European Journal of Finance, Pages: 1 - 30
Swansea University Author:
Sabri Boubaker
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© 2024 The Author(s). This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License.
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DOI (Published version): 10.1080/1351847x.2024.2404088
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...
| Published in: | The European Journal of Finance |
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| ISSN: | 1351-847X 1466-4364 |
| Published: |
Informa UK Limited
2024
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| Online Access: |
Check full text
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa67518 |
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| 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. |
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| Keywords: |
Cost of bank loans; local gambling preference; corporate governance; information risk |
| College: |
Faculty of Humanities and Social Sciences |
| Funders: |
This work was supported by United Arab Emirates University. |
| Start Page: |
1 |
| End Page: |
30 |