Launch of the RI Quarterly

The PRI Academic Network is pleased to introduce the RI Quarterly, a new publication which aims to provide investment professionals and others the latest research on responsible investment. Each issue will focus on a number of academic papers around a theme selected by the PRI’s Academic Fellow, with this first edition examining research along the theme of ESG issues in bank loan pricing and decision making

The following five papers have been reviewed in this RI Quarterly: 


Board quality and the cost of debt

Research finds that US companies with higher quality boards, i.e. large, independent, experienced and diverse, are typically able to borrow at lower interest rates than other firms and with fewer covenants. In addition, companies with lower proportion of institutional equity ownership are able to borrow more cheaply than those with higher institutional ownership.

Do shareholder rights affect the cost of bank loans?

This study theorises that US companies with more shareholder rights are charged higher interest rates for loans than companies with fewer shareholder rights. The authors attribute the difference to banks perceiving a greater risk of takeover during the loan period for companies with more shareholder rights.

The impact of Corporate Social Responsibility

The paper concludes that US firms with risks related to common CSR issues typically pay more for their loans than firms that are considered to be more responsible, particularly when the loan is unsecured. Low quality borrowers may be penalised for investing in discretionary CSR programmes that are not perceived to add value, while high quality borrowers with no ethical risks are not penalised for investing in CSR.


Do cultural differences matter?

A global research paper finds that banks are more likely to offer smaller loans at higher interest rates with more guarantees required, the more culturally distant the borrowing party is from the lending bank. The loan spread increases as the cultural distance increases, e.g. the spread between US-Canada is lower than between US-Japan, and it persists over time and with repeated transactions.

Friends with money

The authors find evidence that personal connections between the senior management of lending banks and the senior management of borrowing companies, such as management having studied or worked together, results in significantly lower interest rates being charged. In addition, subsequent to the loans being made the companies with personal connections to their lenders appear to outperform the companies with no personal connections.

We hope you find the RI Quarterly useful, and welcome any feedback you may have

Download the first edition of the RI Quarterly here. 


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