Is language priced? Evidence from bank loan contracting

Yalu XIE, Chong WANG*, Feng (Harry) WU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review


Previous studies document that firms in countries speaking languages with strong future time reference (FTR), which more sharply dissociates the future from the present, engage in less future-oriented corporate behaviors relating to their default and information risks. We find that strong FTR influences creditors’ pricing of bank loan contracts: banks design more unfavorable loan terms to strong-FTR borrowers, including larger loan spread, higher likelihood of collateral requirement, and more covenants. This effect can be mitigated by a country’s strong governance. We confirm that strong FTR is associated with higher default and information risks of borrowing firms. Overall, our findings suggest that language represents a distinctive risk to banks which is priced in the loan market.
Original languageEnglish
Pages (from-to)745-768
Number of pages24
JournalAsia-Pacific Journal of Accounting and Economics
Issue number3
Early online date19 Nov 2021
Publication statusPublished - 2023

Bibliographical note

Funding Information:
We thank Yue Ma (editor), and an anonymous reviewer for their many insightful and constructive suggestions. We also thank Jeong-Bon Kim, and Byron Yang Song for valuable comments. The authors acknowledge research support from Minnan Normal University, Hong Kong Polytechnic University, and Lingnan University. All errors are our own.

Publisher Copyright:
© 2021 City University of Hong Kong and National Taiwan University.


  • Language
  • bank loan contracting
  • future time reference
  • strong FTR


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