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Bank loan announcements and borrower stock returns before and during the recent financial crisis


Ongena, Steven; Li, Chunshuo (2015). Bank loan announcements and borrower stock returns before and during the recent financial crisis. Journal of Financial Stability, 21:1-12.

Abstract

The impact of U.S. bank loan announcements on the stock prices of the corporate borrowers
has been decreasing during the two last decades with estimated two-day cumulative abnormal returns slipping from almost 200 basis points in the beginning of the 1980s to close to zero by the turn of the Century. We estimate excess returns before and after the onset of the most recent financial crisis. We find that while prior to August 2007 returns were indeed close to zero, afterwards returns jump back up to around 200 basis points. We surmise that in a booming credit market the certification of corporate borrowers by banks started to play a lesser role, while during the crisis the banks’ role was revitalized. Consistent with this interpretation we find that after August 2007 excess returns increase especially for loans with a longer maturity, and for smaller, levered, less profitable or lowly rated firms.

Abstract

The impact of U.S. bank loan announcements on the stock prices of the corporate borrowers
has been decreasing during the two last decades with estimated two-day cumulative abnormal returns slipping from almost 200 basis points in the beginning of the 1980s to close to zero by the turn of the Century. We estimate excess returns before and after the onset of the most recent financial crisis. We find that while prior to August 2007 returns were indeed close to zero, afterwards returns jump back up to around 200 basis points. We surmise that in a booming credit market the certification of corporate borrowers by banks started to play a lesser role, while during the crisis the banks’ role was revitalized. Consistent with this interpretation we find that after August 2007 excess returns increase especially for loans with a longer maturity, and for smaller, levered, less profitable or lowly rated firms.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:December 2015
Deposited On:21 Dec 2015 09:43
Last Modified:05 Apr 2016 19:44
Publisher:Elsevier
ISSN:1572-3089
Publisher DOI:https://doi.org/10.1016/j.jfs.2015.09.006
Related URLs:http://www.sciencedirect.com/science/article/pii/S1572308915000972 (Publisher)
Other Identification Number:merlin-id:12363

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