The Determinants of Bank Loan Recovery Rates

39 Pages Posted: 29 Mar 2012

See all articles by Hinh Khieu

Hinh Khieu

Prairie View A&M University

Donald J. Mullineaux

University of Kentucky - Gatton College of Business and Economics

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics

Date Written: March 27, 2012

Abstract

Using Moody’s “Ultimate Recovery Database,” we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient.

Keywords: Recovery rates, Ultimate recoveries, Loss given default, Credit risk

JEL Classification: G21, G28

Suggested Citation

Khieu, Hinh and Mullineaux, Donald J. and Yi, Ha-Chin, The Determinants of Bank Loan Recovery Rates (March 27, 2012). Journal of Banking and Finance, Vol. 36, No. 4, 2012, Available at SSRN: https://ssrn.com/abstract=2029923

Hinh Khieu (Contact Author)

Prairie View A&M University ( email )

P. O. Box 519
Prairie View, TX 77446
United States

Donald J. Mullineaux

University of Kentucky - Gatton College of Business and Economics ( email )

550 South Limestone
Lexington, KY 40506
United States
859-257-2890 (Phone)
859-257-9688 (Fax)

Ha-Chin Yi

Texas State University, San Marcos - Department of Finance and Economics ( email )

601 University Drive
San Marcos, TX 78666
United States
512-245-3251 (Phone)

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