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Economic preferences over risk-taking and corporate finance

Delis, Manthos and Iosifidi, Maria and Hasan, Iftekhar and Tsoumas, Chris (2021): Economic preferences over risk-taking and corporate finance.

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Abstract

We contend that economic preferences over risk-taking in different subnational regions worldwide affect fundamental aspects of firms’ corporate financing, namely financing costs and capital structure. We study this hypothesis, by hand-matching firms’ regions worldwide with the corresponding regional economic risk-taking preferences. Our baseline results show that credit and bond pricing increase with higher risk-taking preferences, whereas such preferences yield lower ratios of book leverage and short-term debt. We backup our baseline results with an instrumental variables approach, which is based on the premise that high-yield agricultural societies in the pre-industrial era exhibit low risk-taking preferences.

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