{"title":"Does local economic freedom matter for the cost of corporate borrowing from the banking sector? Evidence from the US states","authors":"Thanh Cong Nguyen, Theodora Bermpei, Antonios Nikolaos Kalyvas","doi":"10.1111/jfir.12468","DOIUrl":null,"url":null,"abstract":"<p>Using data on large loans to US firms, we show that higher economic freedom in borrowers' headquarters states reduces the cost of bank credit. A one standard deviation increase in economic freedom lowers loan spreads by 12.38 basis points ($1.5 million interest savings for the average loan). We also provide evidence supporting the economic mechanism by which lenders view economic freedom as enhancing borrowers' ability to capitalize on investment and growth opportunities. The main drivers of this effect are freedom from government spending and taxation, while labor market freedom particularly benefits smaller firms and those in high economic growth potential states. Furthermore, higher economic freedom is linked to longer loan maturities, reduced fees, and looser general covenants.</p>","PeriodicalId":47584,"journal":{"name":"Journal of Financial Research","volume":"48 4","pages":"1569-1608"},"PeriodicalIF":2.3000,"publicationDate":"2025-05-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jfir.12468","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial Research","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/jfir.12468","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Using data on large loans to US firms, we show that higher economic freedom in borrowers' headquarters states reduces the cost of bank credit. A one standard deviation increase in economic freedom lowers loan spreads by 12.38 basis points ($1.5 million interest savings for the average loan). We also provide evidence supporting the economic mechanism by which lenders view economic freedom as enhancing borrowers' ability to capitalize on investment and growth opportunities. The main drivers of this effect are freedom from government spending and taxation, while labor market freedom particularly benefits smaller firms and those in high economic growth potential states. Furthermore, higher economic freedom is linked to longer loan maturities, reduced fees, and looser general covenants.
期刊介绍：
The Journal of Financial Research(JFR) is a quarterly academic journal sponsored by the Southern Finance Association (SFA) and the Southwestern Finance Association (SWFA). It has been continuously published since 1978 and focuses on the publication of original scholarly research in various areas of finance such as investment and portfolio management, capital markets and institutions, corporate finance, corporate governance, and capital investment. The JFR, also known as the Journal of Financial Research, provides a platform for researchers to contribute to the advancement of knowledge in the field of finance.
求助内容：
应助结果提醒方式：
京公网安备 11010802042870号
