Environmental, Social, and Governance Incidents and Bank Loan Contracts

We investigated how a borrower’s adverse environmental, social, and governance incidents affect bank loan contracts. Using sample of 2001 publicly traded US firms during the period from 2007 to 2016, we found that loans initiated after occurrence firm’s or governance-related incident have significantly higher spread lower size. Our contained covered by RepRisk, as RepRisk began tracking firms’ in January 2007. Further analysis showed influence on contracts is more pronounced younger firms, which verifies significant information asymmetry. In addition, test timing year further strengthened our conclusions. Moreover, impact was also reflected other non-monetary items, such duration contract, requests for collateral, frequency covenants, well lender structure. This paper adds discussion economic effects More broadly, results contribute public policy role banks should play transition low-carbon sustainable economy.