@article{89f006e345ff4c2996cbc434428a5169,
title = "Equity Short Selling and the Bank Loan Market",
abstract = "Using a difference-in-differences approach, we show that relaxation of short-sale constraints helps to filter out low-quality borrowers from the bank loan market. Treated firms that can still borrow from banks enjoy a lower loan spread, compared with control firms without this sorting mechanism. The results show that such treated borrowers have improved information asymmetry and credit risk, as well as better nonprice contract terms. Overall, equity short selling has a real effect on the bank loan market by weeding out poor-quality borrowers, resulting in a lower cost of private debt for remaining borrower firms.",
keywords = "bank loan spread, information asymmetry, nonprice contract terms, Reg SHO Pilot program, short selling",
author = "Ho, {Po Hsin} and Chih-Yung Lin and Lin, {Tse Chun}",
note = "Funding Information: We appreciate the comments from two anonymous referees and Robert DeYoung (the editor). We also thank Ekkehart Boehmer, Zou Joe, Elena Loutskina, Xiaorong Ma, Gustavo Manso, Jose A. Scheinkman, Daniel Paravisini, Ju‐Fang Yen, Jing Zhao, and seminar participants from the University of Hong Kong, Hong Kong Polytechnic University, National Taiwan University, Zhejiang University, Shanghai University of Finance and Economics, Eighth International Banking Conference Supervision, Market Discipline, and the Challenge of Bank Profitability, and 2nd Annual Financial Institutions, Regulation and Corporate Governance Conference for their valuable comments. Tse‐Chun Lin gratefully acknowledges research support provided by the Faculty of Business and Economics of the University of Hong Kong. Chih‐Yung Lin appreciates financial support from the Taiwan Ministry of Science and Technology. Any remaining errors are ours. Publisher Copyright: {\textcopyright} 2021 The Ohio State University",
year = "2021",
month = apr,
doi = "10.1111/jmcb.12856",
language = "American English",
journal = "Journal of Money, Credit and Banking",
issn = "0022-2879",
publisher = "Wiley-Blackwell",
}