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

Posted: 24 Jun 2005

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

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Abstract

Unlike seasoned equity or public debt offerings, bank loan financing elicits a significantly positive announcement return, which has led financial economists to characterize bank loans as "special." Here, we find that firms announcing bank loans suffer negative abnormal stock returns over the subsequent three years. In the long run, bank loans appear no different from seasoned equity offerings or public debt issues. Our evidence suggests that larger loans (relative to borrower equity) are followed by worse stock performance. We also find that lender protection is negatively related to borrower performance, suggesting the lender is somewhat shielded from the poor performance.

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. Journal of Financial and Quantitative Analysis, Forthcoming. Available at SSRN: https://ssrn.com/abstract=746544

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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