Social dishonesty and local public firm’s loan spreads: A Chinese bank loan analysis

Abstract

Using loan data from Chinese commercial bank to local listed firms, we investigate how social dishonesty affects bank loan spreads. The results indicate that in high-dishonesty regions, local listed firms obtain bank loans at lower interest spreads, particularly those with stronger political connections, higher information disclosure quality and operations in highly competitive banking markets. Moreover, we further study the external spillover effects. The commercial credit supplied by local listed firms are significantly increasing in high-dishonesty regions. We provide novel evidence that social dishonesty may reduce public firms’ financing costs.