Bank Compensation for the Penalty-Free Loan Prepayment Option: Theory and Evidence

Eckbo and Thorburn dedicate this paper to the memory of their coauthor Xunhua Su, whose contribution was invaluable. The authors are also grateful for the comments and suggestions of Sonny Biswas (discussant), Re-Jin Guo (discussant), Victoria Ivashina (the editor), Michael Kisser, Johnsub Lee (discussant), Greg Nini, Gordon Phillips, Diane Pierret (discussant), Michael Roberts, Anjan Thakor, Anders Vilhelmsson (discussant), Gregory Udell, Jean-Lauren Viviani (discussant), and seminar participants at Drexel University, Lingnan College at Sun Yat-sen University, Lund University, Norwegian School of Economics, Norwegian School of Science and Technology, Shanghai University of Finance and Economics, Sichuan University, Stockholm Business School, the University of Edinburgh, the University of Geneva, the University of Houston, the University of Lausanne, the University of Massachusetts Boston, the University of Pennsylvania (Wharton), and the University of Stavanger. The authors have also received valuable input from participants at the meetings of the French Finance Association, China International Conference in Finance, Financial Management Association, Financial Management Association Europe, Marstrand Finance Conference, UBC Summer Finance Conference, and Exeter Corporate Finance Conference. The authors thank Andre Lot for his valuable research assistance.