National Cultures, Trade Balance, and the Cost of Firm Borrowing Evidence from International Lending Syndicates

Using a sample of 2,635 facilities from 33 countries, we show Hofstede’s culture indices are critical factors in explaining firms’ borrowing costs. After controlling for country and loan specific variables, we find that lenders residing in countries with low tolerance to uncertainty and ambiguity price risk upwards more proportionately than lenders in other countries. The average loan spreads are higher in countries with a higher masculinity index. The lenders charge a higher risk premium because of the perceived higher risk embedded in a higher masculine society. Also, even controlling for the credit ratings of the borrowers, we find that trade balance affects the cost of borrowing firms. Our results suggest that the ratio of import to export can be related to lower information asymmetry and more transparent information, implying a lower cost of borrowing.