Media, Reputational Risk, and Bank Loan Contracting

Abstract

This paper investigates how reputational risk arising from traditional and online media coverage of Corporate Social Irresponsibility (CSI) conducts affects the cost of borrowing. It reports that negative media attention has a significant and positive effect on bank loan costs. The result is robust to endogeneity concerns and alternative measures of key variables. It as well analyses other factors that can mitigate or amplify this effect. It reveals that the impact of negative media attention is more severe if the misconduct involves borrowers with high Corporate Social Responsibility (CSR) reputations. The findings also show that when prior lending relationships exist between the lead arranger and the borrower, the impact is smaller.