Leverage made at home: Investors' margin loan usage and firm leverage

Chunbo Liu and Zilong Niu

Emerging Markets Review, 2023, vol. 55, issue C

Abstract: The “homemade leverage” conjecture by Modigliani and Miller (1958) implies that firm leverage and investors' leverage are substitutes. Using the data of margin loans by Chinese stock investors, we find that investors take significantly fewer margin loans on a stock when the company announces new bank loans. This effect is entirely driven by investors' margin loan repayment upon announcements, and is stronger for firms with higher institutional ownership or lower leverage. The findings suggest that investors undo the change in firm leverage by adjusting margin loans usage, supporting the “homemade leverage” conjecture.

Keywords: Homemade leverage; Margin trading; Loan announcement (search for similar items in EconPapers)
JEL-codes: G11 G32 G51 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1566014123000158
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:55:y:2023:i:c:s1566014123000158

DOI: 10.1016/j.ememar.2023.101010

Access Statistics for this article

Emerging Markets Review is currently edited by Jonathan A. Batten

More articles in Emerging Markets Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().