Lenders’ culture and the pricing of public corruption in corporate loans: evidence from the United States

Abstract

We investigate how the cultural heritage of bank CEOs shapes the relationship between public corruption and the cost of syndicated loans in the US market. We show that banks led by CEOs that trace their origin in high uncertainty avoidance societies penalize less sharply in loan pricing the presence of high local public corruption in the state of the borrowing firms. We find some similar evidence for banks led by CEOs that trace their origin to more individualistic societies. These findings are consistent with the view that certain cultural traits prompt tolerance for the risks of corruption and show that the pricing of institutional quality in corporate loans is conditional on banks led by CEOs with such traits.