TY - JOUR
T1 - Stakeholder Orientation and the Cost of Debt
T2 - Evidence from State-Level Adoption of Constituency Statutes
AU - Gao, Huasheng
AU - Li, Kai
AU - Ma, Yujing
N1 - Funding Information:
We are grateful for helpful comments from Rajesh Aggarwal, Rui Albuquerque, Aziz Alimov, Andrea Buffa, Utpal Bhattacharya, Murray Carlson, Ling Cen, Sandra Chamberlain, Chun Chang, Shaq Chi, Wan-Chien Chiu, François Derrien, Bernard Dumas, Lorenzo Garlappi, Edith Ginglinger, Sergei Glebkin, Will Gornall, Mark Grinblatt, Jarrad Harford, Mark Huson, Chuanyang Hwang, Yeejin Jang, Jon Karpoff, Youngsoo Kim, Karthik Krishnan, Ali Lazrak, Angie Low, Xiaoxia Lou, Guangli Lu, Evgeny Lyandres, Peter Mackay, Paul Malatesta (the editor), Massimo Massa, Egor Matveyev, Vikas Mehrotra, Randall Morck, Kasper Nielsen, Hernan Ortiz-Molina, Clemens Otto, Dino Palazzo, Joël Peress, Edward Podolski, Jeff Pontiff, Lynnette Purda, Sahil Raina, David Reeb, Jon Reuter, Lukas Roth, Zacharias Sautner, Katherine Schipper, Elena Simintzi, Phil Strahan, Günter Strobl, Sheridan Titman, Chishen Wei, John Wei, Lucy White, Michael Wittry (the referee), Hong Yan, Alminas Zaldokas, and Kuncheng Zheng; seminar participants at Boston College, Boston University, the Frankfurt School of Finance and Management, HEC Paris, Hong Kong University of Science and Technology (HKUST), Hong Kong Polytechnic University, INSEAD, Nanyang Technological University, National University of Singapore, Northeastern University, Paris Dauphine University, Shanghai Advanced Institute of Finance, the University of Alberta, and the University of British Columbia; and conference participants at the 2017 Financial Management Association (FMA) Asia/Pacific Conference, the 2017 China International Conference in Finance, and the 2017 Northern Finance Association conference. Gao acknowledges financial support from Shanghai Pujiang Program (Reference Number: 18PJC007), the Program for Professor of Special Appointment (Eastern Scholar) at Shanghai Institutions of Higher Learning (Reference Number: TP2018001), and the National Natural Science Foundation of China (Reference Number: 71973029). Li acknowledges financial support from the Social Sciences and Humanities Research Council of Canada (SSHRC; Grant Number: 435-2013-0023). All errors are our own.
Publisher Copyright:
© 2021 Cambridge University Press. All rights reserved.
PY - 2021/9
Y1 - 2021/9
N2 - We examine the causal effect of stakeholder orientation on firms' cost of debt. Our test exploits the staggered state-level adoption of constituency statutes, which allows directors to consider stakeholders' interests when making business decisions. We find a significant drop in loan spreads for firms incorporated in states that adopted such statutes relative to firms incorporated elsewhere. We further show that constituency statutes reduce the cost of debt through the channels of mitigating conflicts of interest between residual and fixed claimants and between holders of liquid claims and holders of illiquid claims, limiting legal liability and lowering takeover threats.
AB - We examine the causal effect of stakeholder orientation on firms' cost of debt. Our test exploits the staggered state-level adoption of constituency statutes, which allows directors to consider stakeholders' interests when making business decisions. We find a significant drop in loan spreads for firms incorporated in states that adopted such statutes relative to firms incorporated elsewhere. We further show that constituency statutes reduce the cost of debt through the channels of mitigating conflicts of interest between residual and fixed claimants and between holders of liquid claims and holders of illiquid claims, limiting legal liability and lowering takeover threats.
UR - http://www.scopus.com/inward/record.url?scp=85092460178&partnerID=8YFLogxK
U2 - 10.1017/S0022109020000605
DO - 10.1017/S0022109020000605
M3 - Journal article
AN - SCOPUS:85092460178
VL - 56
SP - 1908
EP - 1944
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
SN - 0022-1090
IS - 6
ER -