Bank Loan Price Reactions to Corporate Events: Evidence from Traded Syndicated Loans

49 Pages Posted: 17 Jan 2015

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Redouane Elkamhi

University of Toronto - Rotman School of Management

David C. Mauer

University of North Carolina (UNC) at Charlotte

Raunaq S. Pungaliya

Sungkyunkwan University (SKK) Graduate School of Business

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

Billett, Matthew T. and Elkamhi, Redouane and Mauer, David C. and Pungaliya, Raunaq S., Bank Loan Price Reactions to Corporate Events: Evidence from Traded Syndicated Loans (January 2015). Kelley School of Business Research Paper No. 15-14. Available at SSRN: https://ssrn.com/abstract=2550296 or http://dx.doi.org/10.2139/ssrn.2550296

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

David C. Mauer

University of North Carolina (UNC) at Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7707 (Phone)

Raunaq S. Pungaliya

Sungkyunkwan University (SKK) Graduate School of Business ( email )

53 Myeongnyun-dong 3-ga Jongno-ju
Guro-gu
Seoul, 110-745
Korea, Republic of (South Korea)

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