AN EMPIRICAL-STUDY OF INTEREST-RATE SWAP USAGE BY NONFINANCIAL CORPORATE BUSINESS

This study examines the relationship between the probability and exten t of a firm's participation in interest-rate swap markets and the magn itude of some of its operating and financial ratios. These ratios are selected to proxy incentives to reduce agency costs of leverage and in formation asymmetry in credit markets. The data on swap usage are obta ined from disclosures mandated by SPAS 105. The results suggest that f ixed-rate payers, compared to non-swap-users, have more leverage, grea ter profitability, more growth options, less operating risk, lower rat ios of fixed to total assets, and more divergent earnings estimates. O n the other hand, floating-rate payers do not seem to have financial a nd operating characteristics significantly different from non-swap-use rs, although they do have less divergent earnings estimates.