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The Effect of Organization Capital on the Cost of Bank Loans

Published online by Cambridge University Press:  17 October 2022

Anna Danielova ,
Bill B. Francis ,
Haimeng Teng  and
Qiang Wu Open the ORCID record for Qiang Wu [Opens in a new window]
Anna Danielova
Affiliation:
McMaster University DeGroote School of Business [email protected]
Bill B. Francis
Affiliation:
Rensselaer Polytechnic Institute Lally School of Management [email protected]
Haimeng Teng
Affiliation:
Penn State Harrisburg School of Business Administration [email protected]
Qiang Wu*
Affiliation:
The Hong Kong Polytechnic University School of Accounting and Finance
*
[email protected] (corresponding author)
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Abstract

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We find that organization capital is negatively related to the cost of bank loans. This finding is robust to additional analyses including those that address omitted variable bias and reverse causality. In addition, we find that organization capital reduces all-in-spread-undrawn. When we decompose the bank loan cost, we find that organization capital increases facility fees due to its risk-engendering characteristics. Finally, we find that organization capital is positively associated with a high likelihood of the presence of inventors and innovation output, consistent with the argument that organization capital is embedded in the key talent within a firm.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2579 - 2616
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous reviewer, Max Dolinsky (the discussant), Yiwei Fang, Iftekhar Hasan, Xiaohui Li, Paul Malatesta (the editor), Suresh Mani, Gilna Samuel, Victor Shen, and Colin Zeng for their detailed and helpful comments and suggestions. We also thank participants in the 2017 Financial Management Association (FMA) annual conference for their comments. Wu acknowledges financial support from the startup fund (1-BE52) at Hong Kong Polytechnic University.

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