The Impact of Bank Loan Announcements on Stock Liquidity

50 Pages Posted: 7 May 2022 Last revised: 16 May 2023

See all articles by Thu Phuong Pham

Thu Phuong Pham

Curtin University; IPAG Business School; Financial Research Network (FIRN)

Harminder Singh

Deakin University - School of Accounting, Economics and Finance

Van Hoang Vu

Royal Melbourne Institute of Technolog (RMIT University) - School of Economics, Finance and Marketing

Date Written: February 6, 2023

Abstract

We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realized spreads of borrowers’ stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increase liquidity provision and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than for loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment.

Keywords: Loans announcements, Stock liquidity, Transaction costs, Corporate decisions

Suggested Citation

Pham, Thu Phuong and Singh, Harminder and Vu, Van Hoang, The Impact of Bank Loan Announcements on Stock Liquidity (February 6, 2023). International Review of Economics & Finance, Forthcoming, IREF-D-22-00293, Available at SSRN: https://ssrn.com/abstract=4102971 or http://dx.doi.org/10.2139/ssrn.4102971

Thu Phuong Pham

Curtin University ( email )

GPO Box U1987
Perth WA 6845
Australia
6102 (Fax)

IPAG Business School ( email )

184 BD Saint Germain
Paris, 75006
France

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Harminder Singh

Deakin University - School of Accounting, Economics and Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia

Van Hoang Vu (Contact Author)

Royal Melbourne Institute of Technolog (RMIT University) - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

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