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Strategic Behavior by Equity Lenders

Author

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  • Brian Henderson

    (School of Business, George Washington University, Washington, District of Columbia 20052)

  • Gergana Jostova

    (School of Business, George Washington University, Washington, District of Columbia 20052)

  • Alexander Philipov

    (Costello College of Business, George Mason University, Fairfax, Virginia 22030)

Abstract

We document that stock lenders are informed about market conditions and pursue revenue maximization by setting premiums or offering discounts on stock loan fees. Using a model of supply and demand in the equity lending market, we illustrate the effect of stock borrowers’ private information on the elasticity of shorting demand. Strategic lenders respond to demand elasticity and increase their revenues through premiums or discounts on lending fees. Empirically, decomposing stock loan fees into intrinsic fee and premium or discount, we confirm lenders’ strategic behavior, showing that premiums and discounts among difficult-to-borrow stocks lead to increased lending revenues. This strategic lending behavior has new implications about informed shorting, short interest, and transaction costs in the equity lending market.

Suggested Citation

  • Brian Henderson & Gergana Jostova & Alexander Philipov, 2026. "Strategic Behavior by Equity Lenders," Management Science, INFORMS, vol. 72(5), pages 4359-4384, May.
    • Handle: RePEc:inm:ormnsc:v:72:y:2026:i:5:p:4359-4384
    DOI: 10.1287/mnsc.2023.03270
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