Posted: 2 Sep 2002
This paper examines the information content of the announcement of a sale of a borrower's loans by its lending bank. We find significant negative stock returns for the borrower on the loan sale announcement, particularly for sub-par loan sales, where the bank's information advantage is greatest. Further, a large proportion of these borrowers file for bankruptcy after the loan sale. The evidence supports the hypothesis that news of a bank loan sale conveys negative certification, validated by the subsequent performance of the firms whose loans are sold. We also find that selling banks are not significantly impacted.
Keywords: loan sales, commercial banks
JEL Classification: G2, G3
Suggested Citation: Suggested Citation
Dahiya, Sandeep and Puri, Manju and Saunders, Anthony, Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans. Forthcoming in Journal of Business. Available at SSRN: https://ssrn.com/abstract=323200