CEO Optimism and the Cost of Bank Debt

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

Research output: Contribution to journalArticlepeer-review

2 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 languageEnglish
Pages (from-to)548-580
Number of pages33
JournalAsia-Pacific Journal of Financial Studies
Volume49
Issue number4
DOIs
StatePublished - 1 Aug 2020

Keywords

  • Bank loan
  • CEO optimism
  • Covenant
  • Loan spread

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