ABSTRACT: This paper examines whether and how lenders incorporate the environmental performance of private small and medium-sized enterprises (SMEs) into debt pricing. Using private information on corporate waste to quantify a significant component of Danish SMEs' pollution, I show that SMEs with less waste pollution have a lower cost of debt, and that lenders provide this lower cost of debt to firms with inherently less pollution. The pricing effect is robust to an instrumental variable approach and more pronounced when SMEs obtain new debt. These findings suggest lenders incorporate SMEs' environmental performance into debt pricing without publicly available environmental disclosures and databases, and that lenders focus on managing risk through selection rather than promoting SMEs' green transition.

ABSTRACT: We examine whether criminal records of CEOs and rank-and-file employees are associated with firms’ likelihood of bankruptcy and whether lenders adjust their required cost of debt accordingly. We use a nationwide sample of private firms and criminal registers covering all firm employees. We find that the likelihood of bankruptcy is positively associated with the CEO’s criminal record and the proportion of employees with criminal records. We find some, though less robust, evidence that lenders price a firm’s loan higher when its CEO has a criminal record and when more of its employees have criminal records. The results suggest that the characteristics of firm employees represent a risk that, to some extent, is priced by lenders.

ABSTRACT: This paper examines whether differences in access to governments’ financial support during the COVID-19 pandemic affects firms’ likelihood of bankruptcy. By exploiting plausibly exogenous time differences between firms’ application date and the government’s decision date for support, I find that waiting for support significantly and economically increases firms’ likelihood of bankruptcy. In terms of magnitude, I estimate that the likelihood of bankruptcy increases by between 3.19 (0.04) to 29.34 (0.71) percent (percentage points), depending on the type of support and model specification when firms experience one standard deviation higher decision time to receive support. Although these findings seem intuitive, this is the first study to infer causal estimates of the effect of government support on firms’ likelihood of bankruptcy because of the difficulty of separating the endogenous nature of receiving support from firm performance and concurrent events during economic crises.