Bank Loan Announcement Effects — Evidence from a Comprehensive 8-K Sample

PBCSF-NIFR Research Paper

Allied Social Sciences Association ASSA/AEA 2021 Poster

54 Pages Posted: 17 Dec 2019 Last revised: 10 Feb 2021

See all articles by Shuyue Chen

Shuyue Chen

Tsinghua University, PBC School of Finance, Students

Steven Wei Ho

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Clark Liu

Tsinghua University - PBC School of Finance

Date Written: January 25, 2021

Abstract

Using a comprehensive sample of over 10,000 bank loan announcements, we find results that differ from the findings of Maskara and Mullineaux (JFE 2011) and also that of Fields et al (JMCB 2006), which indicated that announcement effect of bank loans on borrower stocks disappeared as of late. We find bank loan announcements still have significant impact on borrowing firms' equity prices in our large sample, and our results are in-line with the findings of Billet et al (JF 1995), which was disputed by subsequent papers. Furthermore, we find that firms with lower abnormal spreads relative to the KMV-Merton default-risk model have higher announcements returns, an effect which is more pronounced for smaller firms. We also document that stock price run-up prior to bank loan announcements was quite significant in the early sample period but largely disappeared after the Dodd-Frank Act, indicating information leakage was effectively prevented.

Keywords: Event Study, Big Data, Loan Announcement Return, Bank Loans

JEL Classification: G11, G14

Suggested Citation

Chen, Shuyue and Ho, Steven Wei and Liu, Clark, Bank Loan Announcement Effects — Evidence from a Comprehensive 8-K Sample (January 25, 2021). PBCSF-NIFR Research Paper, Allied Social Sciences Association ASSA/AEA 2021 Poster, Available at SSRN: https://ssrn.com/abstract=3480906 or http://dx.doi.org/10.2139/ssrn.3480906

Shuyue Chen

Tsinghua University, PBC School of Finance, Students ( email )

No. 43, Chengdu Road
Beijing 100083
China

Steven Wei Ho

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

HOME PAGE: http://econ.columbia.edu/steven-ho

Clark Liu (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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