Journal of Corporate Finance Vol. 5 No. 1 1999
The interest rate swap: Theory and evidence
Abstract
Nonfinancial firms that use interest rate swaps are compared with nonusers for the years 1991, 1993, and 1995. Swap use grew from 6% of all firms in 1991 to 8% in 1995. Nonfinancial firms use fixed rate payer swaps more often than floating rate payer swaps. Firms that use swaps are significantly larger and have a higher debt to equity ratio relative to nonusers. Fixed rate payers receive a ratings' upgrade significantly more often than floating rate payers and experience a significantly higher percentage increase in net sales in the year of swap initiation relative to floating rate payers and the industry average. Floating rate payers have a significantly higher S&P bond rating relative to the industry average. The test results lend support to the information asymmetry theory of swap usage [Titman, S., 1992. Interest rate swaps and corporate financing choices, Journal of Finance 47, pp. 1503–1516] and lend some support to the asset substitution portion of the agency cost theory of swap usage [Wall, L.D., 1989. Interest rate swaps in an agency theoretic model with uncertain interest rates. Journal of Banking and Finance 13, pp. 261–270].
- DOI
- 10.1016/s0929-1199(98)00017-0
- Volume
- 5
- Issue
- 1
- Pages
- 55-78
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib