Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans
Georgetown University - Department of Finance
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative
New York University - Leonard N. Stern School of Business
Forthcoming in Journal of Business
This paper examines the information content of the announcement of a sale of a borrower's loans by its lending bank. We find significant negative stock returns for the borrower on the loan sale announcement, particularly for sub-par loan sales, where the bank's information advantage is greatest. Further, a large proportion of these borrowers file for bankruptcy after the loan sale. The evidence supports the hypothesis that news of a bank loan sale conveys negative certification, validated by the subsequent performance of the firms whose loans are sold. We also find that selling banks are not significantly impacted.
Keywords: loan sales, commercial banks
JEL Classification: G2, G3
Date posted: September 2, 2002
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