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Purpose – This study aims to analyse the effect of borrower’s country on syndicated loan spreads, featuring countries according to institutional factors, namely financial systems and corporate governance systems. Design/methodology/approach – This study is an empirical investigation based on a unique sample of more than 85,000 syndicated loans from 122 countries. The paper uses standard and 2LS regression analysis to test whether types of financial and corporate governance systems affect loan spreads. Findings – The paper finds that borrowers from countries with financial systems oriented towards the banking-based paradigm pay lower interest rate spreads than those from countries with financial systems oriented towards the market-based paradigm. There is evidence that borrowers from countries with more developed financial systems pay lower spreads. The results also evidence that borrowers from countries with an Anglo-Saxon governance system pay higher spreads than borrowers from countries with a Continental governance system. Originality - The paper highlights the impact of institutional factors on the cost of financing characterizing the countries according to the type of financial system and the type of corporate governance system. The study finds that borrowers from countries with bank-based financial systems pay lower interest rates spreads compared to those from countries with market-based financial systems. The paper also highlights how the level of financial development affects the cost of financing. The paper also focuses on non-financial firms, unlike financial firms which have been the focus of several empirical studies on topics relating to the cost of financing and corporate governance. Research limitations/implications – This study does not consider potential promiscuous relationships, that can arise at the level of ownership structure and governance, between banks and borrowers, that may affect loan spreads. Practical implications – This study suggests that borrower’s financial and corporate governance systems are important factors in the financial intermediation process. The evidence suggests that corporates with higher potential agency cost and higher potential information asymmetry relatively to external loans providers are requested to pay higher spreads. Therefore, the opportunities to such corporates invest optimally tend to be scarcer. info:eu-repo/semantics/draft

The institutional environment of the company’s country is reflected in its choices between different sources of financing. Given the fact that different countries have diverse specific characteristics, this work proposes to investigate how the financial, governance and legal systems of the borrower’s country of origin influence the costs of financing. Using a sample of syndicated loans with 85,220 tranches, corresponding to 50,658 loans by 25,511 non-financial borrowers from 122 countries, over the period between 2000 and 2012, we find evidence that borrowers pay lower spreads when they come from countries with a bank-based financial system, a continental governance system and when the legal system is common law. By splitting the sample according to the level of risk, we show that for borrowers with an investment grade rating, the type of legal system is irrelevant, whereas for those borrowers with junk ratings no type of system is relevant in determining spreads. When borrowers are junk or unrated, the lenders tend to perform a careful analysis of the company’s financial situation and award higher spreads in countries where the legal system is civil or socialist law. Our results suggest that the borrower country’s financial, governance and legal systems are relevant in determining syndicated loan spreads. info:eu-repo/semantics/draft

The institutional environment of the company’s country is reflected in its choices between different sources of financing. Given the fact that different countries have diverse specific characteristics, this work proposes to investigate how the financial, governance and legal systems of the borrower’s country of origin influence the costs of financing. Using a sample of syndicated loans with 85,220 tranches, corresponding to 50,658 loans by 25,511 non-financial borrowers from 122 countries, over the period between 2000 and 2012, we find evidence that borrowers pay lower spreads when they come from countries with a bank-based financial system, a continental governance system and when the legal system is common law. By splitting the sample according to the level of risk, we show that for borrowers with an investment grade rating, the type of legal system is irrelevant, whereas for those borrowers with junk ratings no type of system is relevant in determining spreads. When borrowers are junk or unrated, the lenders tend to perform a careful analysis of the company’s financial situation and award higher spreads in countries where the legal system is civil or socialist law. Our results suggest that the borrower country’s financial, governance and legal systems are relevant in determining syndicated loan spreads. info:eu-repo/semantics/publishedVersion