Download This PaperBank Loan Price Reactions to Corporate Events: Evidence from Traded Syndicated Loans
49 Pages Posted: 17 Jan 2015
Date Written: January 2015
Abstract
We examine the effect of open market share repurchase announcements on prices of traded loans and find a significant wealth transfer effect; the change in the market value of equity is inversely related to the change in the market value of loans. We find that loan abnormal returns are more negative when the loan contains incurrence covenants (e.g., payout restrictions), and that a combination of incurrence covenants and maintenance covenants significantly attenuates the negative effect of share repurchases on loan prices. We also find evidence of wealth transfers between loans and equity at the announcement of seasoned equity issues.
Keywords: Loan returns, Bank contracts, Wealth transfers, Share repurchases, SEOs
JEL Classification: G14, G21, G24, M41
Suggested Citation: Suggested Citation
Matthew T. Billett (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)
Redouane Elkamhi
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada