Information Spillovers and Cross Monitoring between the Stock Market and Loan Market

66 Pages Posted: 17 Feb 2016 Last revised: 23 Mar 2019

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Fangzhou Liu

Shanghai University of Finance and Economics - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: October 20, 2018

Abstract

We explore information spillovers and cross monitoring between the stock and loan markets around Regulation SHO. Our setting directly affects information production and monitoring 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.Our evidence suggests bi-directional information spillovers and cross monitoring between these two markets, and they affect the loan markets through the reduction in information monopoly that banks possess over their borrowers.

Keywords: short selling constraints, Regulation SHO, information spillover, cross monitoring, information monopoly, bank loan

JEL Classification: G14, G18, G21

Suggested Citation

Billett, Matthew T. and Liu, Fangzhou and Tian, Xuan, Information Spillovers and Cross Monitoring between the Stock Market and Loan Market (October 20, 2018). Kelley School of Business Research Paper No. 16-20. Available at SSRN: https://ssrn.com/abstract=2732784 or http://dx.doi.org/10.2139/ssrn.2732784

Matthew T. Billett (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Fangzhou Liu

Shanghai University of Finance and Economics - Department of Finance ( email )

Shanghai, 200433
China

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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