More generally, by examining the perceived corruption in the top executive team of publicly traded firms in the U.S., our study contributes to the bourgeoning literature documenting significant impacts of corporate culture on firm outcomes (Zingales, 2015).īanks possess information access rights and are well-known for their ability to gather private information they can use to make judgments regarding loan terms (Chava and Roberts, 2008 Roberts and Sufi, 2009 Nini et al., 2009 Nini et al., 2012). Since we measure corruption culture at the executive-level, we are able to infer whether and how lenders perceive such culture as revealed in the debt contracts they enter into with borrowers. Alternatively, it is possible that lenders are subject to a cultural proximity (in-group) bias, such that they place less weight on perceived corruption culture when borrowers are culturally proximate. One explanation is that lenders structure loans taking into account the risk of possible corporate misbehavior by executives with relatively higher levels of perceived corruption.
Against this backdrop, an important contribution of our study is to disentangle two potential explanations. In a cross-country setting, a related line of research finds that bilateral cultural proximity and perceived trust have a significant impact on trade and loan contracts (Guiso et al., 2009 Giannetti and Yafeh, 2012 Fishman et al., 2017), but none of these studies examines the impact of corruption in the top management team of the borrowing firm on debt contracts. Recent research finds that executives with higher levels of perceived corruption engage in corporate misbehavior (DeBacker et al., 2015 Liu, 2016), but evidence on whether (and how) lenders consider perceived corruption in the structure of contracts they write with borrowers is sparse. We examine the relationship between the perception of corporate corruption culture in the top executive team of U.S.-based publicly traded firms and debt contracting.
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