Environmental Regulation and the Cost of Bank Loans: International Evidence

Authors

Amirhossein Fard
Siamak Javadi, The University of Texas Rio Grande Valley
Incheol Kim, The University of Texas Rio Grande ValleyFollow

Document Type

Article

Publication Date

12-2020

Abstract

Using a sample of 27 countries between 1990 and 2014, we find that banks charge a higher interest rate on their loans when lending to firms that face more stringent environmental regulations. Further, we show that firms facing such regulations maintain lower financial leverage, incur more operating expenses, and have fewer banks participating in their loan syndicate. The results of the subsample analysis suggest that the increase in the cost of bank loans is more pronounced for financially constrained firms, firms in industries with high environmental litigation risk, and those located in bank-based economies. Overall, our results provide evidence that the observed higher loan spread is the result of environmentally sensitive lending practices by banks.

Comments

Original published version available at https://doi.org/10.1016/j.jfs.2020.100797

Recommended Citation

Fard, Amirhossein, Siamak Javadi, and Incheol Kim. "Environmental regulation and the cost of bank loans: International evidence." Journal of Financial Stability 51 (2020): 100797. https://doi.org/10.1016/j.jfs.2020.100797

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Publication Title

Journal of Financial Stability

DOI

10.1016/j.jfs.2020.100797