Environmental regulation and the cost of bank loans: International evidence

By A. Fard, S. Javadi, Incheol Kim. Journal of Financial Stability, 2020

146 citations recorded by the source corpus.

Abstract Using a sample of 27 countries between 1990 and 2014, we find that banks charge higher interest rates and adjust other contractual features of their loans when lending to firms facing more stringent environmental regulations. Our evidence suggests that lenders’ concerns about the increase in environmental liabilities resulting from regulations is driving the results. Specifically, we show that firms facing such regulations have fewer participants in their loan syndicates, higher bankruptcy risk, and lower credit ratings, despite reducing their leverage. Overall, our results indicate that the observed higher loan spread is the result of environmentally sensitive lending practices by banks.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/d2eebb31ca9c0f24f04d4652939fd8f8bc5f7212

Citations in the corpus

• The impact of climate change on the cost of bank loans (2020, unknown): “Prior research has shown that the adverse effect climate risk is more pronounced for non-investment rated firms (Painter, 2020; Fard et al., 2020; Seltzer et al., 2020).”