Are Bank Loans Special? Evidence on the Post-Announcement Performance of Bank Borrowers.

41 Pages Posted: 16 Aug 2001

See all articles by Matthew T. Billett

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance

Mark J. Flannery

University of Florida - Department of Finance, Insurance and Real Estate

Jon A. Garfinkel

University of Iowa - Tippie College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 26, 2001

Abstract

Unlike equity offerings or public debt offerings, bank loan financing elicits a significantly positive announcement return, which has led financial economists to characterize bank loans as "special" or somehow different from other types of external finance. Here, we find that firms announcing bank loan financing suffer negative abnormal stock returns during the three-year post-announcement period. In the long run, therefore, it appears that bank loans are no different from seasoned equity offerings or public debt issuance. We also find that bank borrowers had operating performance below their peers' a year before their loan announcement, and that their performance does not improve in the subsequent three years. Finally, we document a reduction in earnings transparency following bank loan announcements. These findings are inconsistent with the notion that bank loans mitigate asymmetric information problems of the borrower.

Keywords: Bank Loans, Long-run Performance

JEL Classification: G14, G21

Suggested Citation

Billett, Matthew T. and Flannery, Mark Jeffrey and Garfinkel, Jon A., Are Bank Loans Special? Evidence on the Post-Announcement Performance of Bank Borrowers. (November 26, 2001). AFA 2002 Atlanta Meetings. Available at SSRN: https://ssrn.com/abstract=279629 or http://dx.doi.org/10.2139/ssrn.279629

Matthew T. Billett

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3366 (Phone)

Mark Jeffrey Flannery

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States
352-392-3184 (Phone)
352-392-0103 (Fax)

Jon A. Garfinkel (Contact Author)

University of Iowa - Tippie College of Business ( email )

108 PBB
Iowa City, IA 52242-1000
United States
319-335-0943 (Phone)
319-335-3690 (Fax)

HOME PAGE: http://www.biz.uiowa.edu/faculty/jgarfinkel

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