Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-15T17:49:20.193Z Has data issue: false hasContentIssue false
  • English
  • Français

The Effect of Organization Capital on the Cost of Bank Loans

Published online by Cambridge University Press:  17 October 2022

Anna Danielova ,
Bill B. Francis ,
Haimeng Teng  and
Qiang Wu Open the ORCID record for Qiang Wu [Opens in a new window]
Anna Danielova
Affiliation:
McMaster University DeGroote School of Business adaniel@mcmaster.ca
Bill B. Francis
Affiliation:
Rensselaer Polytechnic Institute Lally School of Management francb@rpi.edu
Haimeng Teng
Affiliation:
Penn State Harrisburg School of Business Administration hpt5087@psu.edu
Qiang Wu*
Affiliation:
The Hong Kong Polytechnic University School of Accounting and Finance
*
qiang.wu@polyu.edu.hk (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We find that organization capital is negatively related to the cost of bank loans. This finding is robust to additional analyses including those that address omitted variable bias and reverse causality. In addition, we find that organization capital reduces all-in-spread-undrawn. When we decompose the bank loan cost, we find that organization capital increases facility fees due to its risk-engendering characteristics. Finally, we find that organization capital is positively associated with a high likelihood of the presence of inventors and innovation output, consistent with the argument that organization capital is embedded in the key talent within a firm.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2579 - 2616
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous reviewer, Max Dolinsky (the discussant), Yiwei Fang, Iftekhar Hasan, Xiaohui Li, Paul Malatesta (the editor), Suresh Mani, Gilna Samuel, Victor Shen, and Colin Zeng for their detailed and helpful comments and suggestions. We also thank participants in the 2017 Financial Management Association (FMA) annual conference for their comments. Wu acknowledges financial support from the startup fund (1-BE52) at Hong Kong Polytechnic University.

References

Altman, E. “Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy.” Journal of Finance, 23 (1968), 589–609.Google Scholar
Atkeson, A., and Kehoe, P. J.. “Measuring Organization Capital.” NBER Working Paper No. w8722 (2002).Google Scholar
Berg, T.; Saunders, A.; and Steffen, S.. “The Total Cost of Corporate Borrowing in the Loan Market: Don’t Ignore the Fees.” Journal of Finance, 71 (2016), 1357–1392.Google Scholar
Berg, T.; Saunders, A.; Steffen, S.; and Streitz, D.. “Mind the Gap: The Difference Between US and European Loan Rates.” Review of Financial Studies, 30 (2017), 948–987.Google Scholar
Bharath, S. T.; Sunder, J.; and Sunder, S. V.. “Accounting Quality and Debt Contracting.” Accounting Review, 83 (2008), 1–28.Google Scholar
Bloom, N., and Van Reenen, J.. “Measuring and Explaining Management Practices Across Firms and Countries.” Quarterly Journal of Economics, 122 (2007), 1351–1408.Google Scholar
Boguth, O.; Newton, D.; and Simutin, M.. “The Fragility of Organization Capital.” Journal of Financial and Quantitative Analysis, 57 (2021), 857–887.Google Scholar
Brown, E., and Kaufold, H.. “Human Capital Accumulation and the Optimal Level of Unemployment Insurance Provision.” Journal of Labor Economics, 6 (1988), 493–514.Google Scholar
Chakraborty, I.; Leone, A. J.; Minutti-Meza, M.; and Phillips, M. A.. “Financial Statement Complexity and Bank Lending Complexity and Bank Lending.” Accounting Review, 97 (2022), 155–178.Google Scholar
Chemmanur, T. J.; Kong, L.; Krishnan, K.; and Yu, Q.. “Top Management Human Capital, Inventor Mobility, and Corporate Innovation.” Journal of Financial and Quantitative Analysis, 53 (2019), 2383–2422.Google Scholar
Corrado, C.; Hulten, C.; and Sichel, D.. “Intangible Capital and US Economic Growth.” Review of Income and Wealth, 55 (2009), 661–685.Google Scholar
Cragg, J. G., and Donald, S. G.. “Testing Identifiability and Specification in Instrumental Variable Models.” Econometric Theory, 9 (1993), 222–240.Google Scholar
Dessein, W., and Prat, A.. “Organizational Capital, Corporate Leadership, and Firm Dynamics.” Journal of Political Economy, 130 (2022), 1427–1476.Google Scholar
Donelson, D. C.; Jennings, R.; and Mcinnis, J.. “Financial Statement Quality and Debt Contracting: Evidence from a Survey of Commercial Lenders.” Contemporary Accounting Research, 34 (2017), 2051–2093.Google Scholar
Eisfeldt, A. L., and Papanikolaou, D.. “Organization Capital and the Cross-Section of Expected Returns.” Journal of Finance, 68 (2013), 1365–1406.Google Scholar
Eisfeldt, A. L., and Papanikolaou, D.. “The Value and Ownership of Intangible Capital.” American Economic Review, 104 (2014), 189–194.Google Scholar
Ellis, I. “Maximizing Intellectual Property and Intangible Assets: Case Studies in Intangible Asset Finance.” Athena Alliance. Available at: https://www.issuelab.org/resources/3304/3304.pdf (2009).Google Scholar
Evenson, R. E., and Westphal, L. E.. “Technological Change and Technology Strategy.” In Handbook of Development Economics, Vol. 3. Amsterdam: Elsevier (1995), 2209–2299.Google Scholar
Falato, A.; Kadyrzhanova, D.; Sim, J.; and Steri, R.. “Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut.” Journal of Finance, 77 (2022), 2799–2852.Google Scholar
Francis, B.; Mani, S. B.; Sharma, Z.; and Wu, Q.. “The Impact of Organization Capital on Firm Innovation.” Journal of Financial Stability, 53 (2021), 100829.Google Scholar
Graham, J.; Li, S.; and Qiu, J.. “Corporate Misreporting and Bank Loan Contracting.” Journal of Financial Economics, 89 (2008), 44–61.Google Scholar
Hamler, N. “Impending Merger of the Inevitable Disclosure Doctrine and Negative Trade Secrets: Is Trade Secrets Law Headed in the Right Direction?” Journal of Corporate Law, 25 (2000), 383–405.Google Scholar
Hasan, I., Hoi, C. K. S., Wu, Q., and Zhang, H.. “Beauty is in the Eye of the Beholder: The Effect of Corporate Tax Avoidance on the Cost of Bank Loans.” Journal of Financial Economics, 113 (2014), 109–130.Google Scholar
Hasan, I.; Hoi, C. K. S.; Wu, Q.; and Zhang, H.. “Social Capital and Debt Contracting: Evidence from Bank Loans and Public Bonds.” Journal of Financial and Quantitative Analysis, 52 (2017), 1017–1047.Google Scholar
Hassler, J.; Mora, J. V. Rodriguez; Storesletten, K.; and Zilibotti, F.. “A Positive Theory of Geographic Mobility and Social Insurance.” International Economic Review, 46 (2005), 263–303.Google Scholar
Houston, J. F.; Jiang, L.; Lin, C.; and Ma, Y.. “Political Connections and the Cost of Bank Loans.” Journal of Accounting Research, 52 (2014), 193–243.Google Scholar
Ivashina, V. “Asymmetric Information Effects on Loan Spreads.” Journal of Financial Economics, 92 (2009), 300–319.Google Scholar
Klasa, S.; Ortiz-Molina, H.; Serfling, M.; and Srinivasan, S.. “Protection of Trade Secrets and Capital Structure Decisions.” Journal of Financial Economics, 128 (2018), 266–286.Google Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation, and Growth.” Quarterly Journal of Economics, 132 (2017), 665–712.Google Scholar
Kumar, P., and Li, D.. “Capital Investment, Innovative Capacity, and Stock Returns.” Journal of Finance, 71 (2016), 2059–2094.Google Scholar
Lev, B. Intangibles: Management, Measurement and Reporting. Washington, DC: The Brookings Institution Press (2000).Google Scholar
Lev, B., and Radhakrishnan, S.. “The Valuation of Organization Capital.” In Measuring Capital in the New Economy. Chicago: University of Chicago Press (2005) 73–110.Google Scholar
Lev, B.; Radhakrishnan, S.; and Evans, P. C.. “Organization Capital: A CEO’s Guide to Measuring and Managing Enterprise Intangibles.” Working Paper, Center for Global Enterprise (2016).Google Scholar
Lev, B.; Radhakrishnan, S.; and Zhang, W.. “Organization Capital.” Abacus, 45(2009), 275–298.Google Scholar
Levhari, D., and Weiss, Y.. “The Effect of Risk on the Investment in Human Capital.” American Economic Review, 64 (1974), 950–963.Google Scholar
Li, G. C.; Lai, R.; D’Amour, A.; Doolin, D. M.; Sun, Y.; Torvik, V. I.; Yu, A. Z.; and Fleming, L.. “Disambiguation and Co-Authorship Networks of the US Patent Inventor Database (1975–2010).” Research Policy, 43 (2014), 941–955.Google Scholar
Li, K.; Qiu, B.; and Shen, R.. “Organization Capital and Mergers and Acquisitions.” Journal of Financial and Quantitative Analysis, 53 (2018), 1871–1909.Google Scholar
Li, Z.; Wang, L.; and Wruck, K.. “Accounting-Based Compensation and Debt Contracts.” Contemporary Accounting Research, 37 (2020), 1475–1511.Google Scholar
Light, A., and Omori, Y.. “Unemployment Insurance and Job Quits.” Journal of Labor Economics, 22 (2004), 159–188.Google Scholar
Marx, M.; Strumsky, D.; and Fleming, L.. “Mobility, Skills, and the Michigan Non-Compete Experiment.” Management Science, 55 (2009), 875–889.Google Scholar
Peters, R. H., and Taylor, L. A.. “Intangible Capital and the Investment-q Relation.” Journal of Financial Economics, 123 (2017), 251–272.Google Scholar
Prescott, E., and Visscher, M.. “Organization Capital.” Journal of Political Economy, 88 (1980), 446–461.Google Scholar
S&P Global. “How Management & Governance Risks and Opportunities Factor into Global Corporate Ratings.” Available at: https://www.spglobal.com/en/research-insights/articles/how-management-governance-risks-and-opportunities-factor-into-global-corporate-ratings (2018).Google Scholar
Seru, A. “Firm Boundaries Matter: Evidence from Conglomerates and R&D Activity.” Journal of Financial Economics, 111 (2014), 381–405.Google Scholar
Shipman, J. E.; Swanquist, Q. T.; and Whited, R. L.. “Propensity Score Matching in Accounting Research.” Accounting Review, 92 (2017), 213–244.Google Scholar
Stock, J., and Yogo, M.. “Asymptotic Distributions of Instrumental Variables Statistics with Many Instruments.” In Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, Vol. XI, Andrews, D. W. K., and Stock, J., eds. Cambridge: Cambridge University Press (2005).Google Scholar
Sufi, A. “Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans.” Journal of Finance, 62 (2007), 629–668.Google Scholar