An empirical test of agency cost reduction using interest rate swaps
نویسندگان
چکیده
This paper tests a model based on Wall's (Wall, L., 1989. Journal of Banking and Finance 13, 261±270) hypothesis of agency cost reduction using interest rate swaps. We ®nd a signi®cant positive relationship between the risk of the ®rm and the reduction of agency costs measured by the continuously compounded excess return (CAR) of the ®rm. Our ®ndings are consistent with WallÕs hypothesis and other theories of swap transactions and in explaining the existence and growth of the swap market. Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: D80; G10; G14
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