CEO Optimism and the Cost of Bank Debt

Yura Kim; Hyun Dong Kim; Kyojik “Roy” Song

doi:10.1111/ajfs.12309

CEO Optimism and the Cost of Bank Debt

Yura Kim, Hyun Dong Kim, Kyojik “Roy” Song

School of Business Administration

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

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.

Original language	English
Pages (from-to)	548-580
Number of pages	33
Journal	Asia-Pacific Journal of Financial Studies
Volume	49
Issue number	4
DOIs	https://doi.org/10.1111/ajfs.12309
State	Published - 1 Aug 2020

Keywords

Bank loan
CEO optimism
Covenant
Loan spread

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10.1111/ajfs.12309

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title = "CEO Optimism and the Cost of Bank Debt",

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.",

keywords = "Bank loan, CEO optimism, Covenant, Loan spread",

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AB - 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.

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CEO Optimism and the Cost of Bank Debt

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Keywords

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