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Lender Trust and Bank Loan Contracts

Hagendorff, J.; Lim, S.; Nguyen, D.D.

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J. Hagendorff

S. Lim


We examine the contractual implications of a lender’s trust in corporate loans. We measure how trusting a lender is using the average trust attitude in the chief executive officer’s (CEO) ancestral country of origin. We find that banks with trusting CEOs charge lower interest rates in US syndicated loans. This effect is identified within existing lender-borrower relationships and similar types of loans. Further analyses indicate that trust reduces the cost of credit by boosting the perceived credibility of borrower information and by mitigating contracting problems. We corroborate our findings by conducting a survey of loan officers with experience in loan syndication.


Hagendorff, J., Lim, S., & Nguyen, D. (2023). Lender Trust and Bank Loan Contracts. Management Science, 69(3), 1758-1779.

Journal Article Type Article
Acceptance Date Nov 19, 2021
Online Publication Date Mar 23, 2022
Publication Date 2023-03
Deposit Date Feb 5, 2022
Publicly Available Date Feb 16, 2022
Journal Management Science
Print ISSN 0025-1909
Electronic ISSN 1526-5501
Publisher Institute for Operations Research and Management Sciences
Peer Reviewed Peer Reviewed
Volume 69
Issue 3
Pages 1758-1779
Keywords CEOs, Trust, Cultural values, Financial contracts
Public URL


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