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CEO Optimism and the Cost of Bank Debt
Author(s) -
Kim Yura,
Kim HyunDong,
Song Kyojik “Roy”
Publication year - 2020
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12309
Subject(s) - optimism , loan , business , debt , monetary economics , financial system , finance , covenant , economics , psychology , social psychology , philosophy , theology
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.