Information Spillovers and Cross Monitoring between the Stock Market and Loan Market
49 Pages Posted: 17 Feb 2016 Last revised: 21 Oct 2018
Date Written: October 20, 2018
We explore information spillovers and cross monitoring between the stock and loan markets using around Regulation SHO, which relaxes short selling constraints for a random set of firms. Our setting directly affects information production and monitoring by short sellers in the stock market but is exogenous to the loan market. We find that only those firms without bank monitors exhibit significant stock price declines upon the announcement of SHO. SHO-affected firms with a bank loan experience a 24 basis point reduction in loan spreads. Overall, our evidence suggests bi-directional information spillovers and cross monitoring between the stock and loan markets.
Keywords: short selling constraints, Regulation SHO, information spillover, cross monitoring, information monopoly, bank loan
JEL Classification: G14, G18, G21
Suggested Citation: Suggested Citation