What is it about?
This paper analyses the effect of institutions and the structure of the banking system on the cost of debt for a sample of firms from 37 countries. The cost of debt decreases with the rule of law, the protection of creditors’ rights, and the weight of banks in the economy. The bank financing and bank concentration have a positive differential effect on the cost of debt in those countries where the financial difficulties of banks are greater. Legal enforcement, the protection of creditors’ rights and the weight of bank financing have a greater influence in countries with a lower degree of economic development.
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Why is it important?
We extend previous evidence considering not only the protection of creditor and property rights, but also variables that were not considered that will potentially have an influence on the conditions of debt, such as those that form the structure of a country’s banking system, namely the weight of bank financing and bank concentration. We also consider the solvency level of banks in the aforementioned analysis as the financial condition of banks is crucial for economies, as it may have consequences for business activity.
Perspectives
Writing this article was a great pleasure as it was the first paper for my co-author.
Victor Gonzalez
Universidad de Oviedo
Read the Original
This page is a summary of: Institutions, banking structure and the cost of debt: new international evidence, Accounting and Finance, November 2019, Wiley,
DOI: 10.1111/acfi.12567.
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