CEO Optimism and the Cost of Bank Debt. (3rd August 2020)

• Record Type: Journal Article
• Authors: Kim, Yura; Kim, Hyun‐Dong; Song, Kyojik "Roy"
• Is Part Of: Asia-Pacific journal of financial studies. Volume 49:Number 4(2020:Aug.)
• Page Start: 548
• Page End: 580
• Publication Date: 2020-08-03
• Subjects: CEO optimism -- Bank loan -- Loan spread -- Covenant; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12309
• Languages: English
• ISSNs: 2041-9945

Abstract

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.