Abstract
This study examines how loan requests for intensifying Corporate Social Performance (CSP) and loan requests for increasing innovation intensity affect loan officers’ credit judgments and lending decisions. I also examine the impact of a balanced loan request for both CSP and innovation intensity. I designed an experiment by manipulating the purpose of a loan request from a pharmaceutical company in order to create four alternative lending scenarios: (1) a full loan request for intensifying CSP activities; (2) a full loan request for increasing innovation intensity; (3) a loan request for a balanced investment in both CSP and innovation; and (4) a general purpose loan request (control group). My findings support that CSP investment is interpreted by loan officers as an indicator of superior Corporate Financial Performance. However, I did not find a clear positive relationship between innovation intensity and lending decisions. These results are consistent with the view that lenders could be reluctant to fund innovation intensity initiatives since the value of investments in R&D as collateral is very limited in practice and there is a considerable time lag between this investment and its payoff. Contrary to my expectations, I did not find that a balanced loan request for both CSP and R&D is interpreted by loan officers as the most favorable lending scenario for an innovative firm.
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