Don't interfere with my rights! Employee rights violation and the cost of bank loans

Abstract

We study the relationship between the cost of bank loans and the charges filed to the National Labor Relations Board (NLRB) due to managerial interference in employee rights.Loans issued after the filing of the allegations are associated with significantly higher loan spreads than loans initiated before the filing of allegations. Strong allegations that result in withdrawal with adjustments or compliance tend to positively affect the loan pricing. Further, interfering firms tend to experience higher default risks in the years following the filing of charges. Our paper is the first in the literature to show the impact of violation of employee rights on the cost of bank loans, which has an implication for environmental, social, and governance (ESG) lending where loan contract terms are contingent on borrower ESG performance.