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Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans

Posted: 2 Sep 2002  

Sandeep Dahiya

Georgetown University - Department of Finance

Manju Puri

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Anthony Saunders

New York University - Leonard N. Stern School of Business

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Abstract

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

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

Sandeep Dahiya

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

1 Towerview Drive
Box 90120
Durham, NC 27708-0120
United States
919-660-7657 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative

215 Morris St., Suite 300
Durham, NC 27701
United States

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

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