On the Relation between Commercial and Industrial Loan Portfolio Values and Borrowers’ Earnings and Operating Cash Flows

Posted: 29 Mar 2012 Last revised: 1 Dec 2020

See all articles by N. Bugra Ozel

N. Bugra Ozel

University of Texas at Dallas; The Wharton School

Date Written: March 1, 2013

Abstract

A major difficulty in the analysis of factors that affect loan valuation is that there does not exist a measure of loan values that can be applied to the general population of loans. I use loan quality disclosures from commercial banks’ regulatory filings to construct a measure of realizable values of commercial and industrial loan portfolios. Using this measure, I examine how loan values aggregated to the economy-level respond to aggregate-level shocks to discount rates and borrowers’ earnings and operating cash flows. Several new insights regarding banks’ use of fundamentals in loan valuation emerge. I discuss the relevance and implications of the findings for research on loan quality disclosures, debt valuation, and the association between accounting information and economic outcomes.

Keywords: Loan values, Aggregate earnings, Discount rates, Expected cash flows

JEL Classification: E32, G12, G20, M41

Suggested Citation

Ozel, N. Bugra, On the Relation between Commercial and Industrial Loan Portfolio Values and Borrowers’ Earnings and Operating Cash Flows (March 1, 2013). Available at SSRN: https://ssrn.com/abstract=2029927 or http://dx.doi.org/10.2139/ssrn.2029927

N. Bugra Ozel (Contact Author)

University of Texas at Dallas ( email )

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HOME PAGE: http://sites.google.com/view/bugraozel/home

The Wharton School ( email )

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HOME PAGE: http://sites.google.com/view/bugraozel/home

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