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CEO Optimism and the Cost of Bank Debt

CEO Optimism and the Cost of Bank Debt This paper examines the effect of the level of CEO optimism on loan spread and number of covenants using 4869 loan facilities (tranches) made to 1271 U.S. industrial firms over the period 1992–2011. We find that banks charge significantly lower spreads and impose a smaller number of covenants on loans made to firms with moderately optimistic CEOs. However, banks tend to charge higher costs on loans made to firms with low‐ or high‐optimism CEOs. The results suggest that the level of CEO optimism and the costs of bank loans have a convex relation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

CEO Optimism and the Cost of Bank Debt

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Publisher
Wiley
Copyright
Copyright © 2020 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/ajfs.12309
Publisher site
See Article on Publisher Site

Abstract

This paper examines the effect of the level of CEO optimism on loan spread and number of covenants using 4869 loan facilities (tranches) made to 1271 U.S. industrial firms over the period 1992–2011. We find that banks charge significantly lower spreads and impose a smaller number of covenants on loans made to firms with moderately optimistic CEOs. However, banks tend to charge higher costs on loans made to firms with low‐ or high‐optimism CEOs. The results suggest that the level of CEO optimism and the costs of bank loans have a convex relation.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Aug 1, 2020

Keywords: ; ; ;

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