Equity Spillovers to the Banking Market

56 Pages Posted: 28 Mar 2018 Last revised: 17 Jun 2021

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Phong T. H. Ngo

Australian National University (ANU)

Ying Xia

Monash University - Monash Business School

Date Written: June 17, 2021

Abstract

We examine how liquidity in the equity market affects bank lending costs. An exogenous decrease in liquidity during the SEC Tick Size Pilot Program raises corporate bank borrowing costs; an effect that reverses when the program ends. We find similar results in a broad panel of firms using both retail and institutional measures of liquidity. We identify three non-mutually exclusive channels driving this effect. Liquidity increases the price informativeness, enhances external monitoring by blockholders, and weakens the holdup problem in relationship banking. Finally, consistent with our channels we show that firms obtain larger loans with fewer covenant and collateral requirements.

Keywords: liquidity, syndicated loans, spillovers, stock price informativeness, blockholders, holdup problem

JEL Classification: G10, G14, G21, G32

Suggested Citation

Brogaard, Jonathan and Ngo, Phong T. H. and Xia, Ying, Equity Spillovers to the Banking Market (June 17, 2021). Available at SSRN: https://ssrn.com/abstract=3150149 or http://dx.doi.org/10.2139/ssrn.3150149

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Phong T. H. Ngo (Contact Author)

Australian National University (ANU) ( email )

RSFAS, College of Business and Economics
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61 2 6125 1079 (Phone)

HOME PAGE: http://cbe.anu.edu.au/people/rsfas/phong-ngo/

Ying Xia

Monash University - Monash Business School ( email )

900 Dandenong Road
Caulfield Campus
Melbourne, Victoria 3145
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
242
Abstract Views
1,404
rank
155,741
PlumX Metrics