Following Miles and Snow’s Business Strategy (BS) topology, we find that banks impose relatively higher loan spreads for the firms that follow an Innovation-Oriented Business Strategy (IOBS). We further document that IOBS is positively associated with corporate risk measures such as variances in equity returns and returns on assets. Overall, our findings suggest that banks charge a higher cost of debt in anticipation of borrowers’ payback riskiness from an IOBS.
Amin, Md Ruhul and Masum, Abdullah Al, Business Strategy and Cost of Bank Loans (May 7, 2021). Available at SSRN: https://ssrn.com/abstract=3841664 or http://dx.doi.org/10.2139/ssrn.3841664