Sources of Value in Bank Lines of Credit: Evidence from the Lender's Perspective

Bank Structure and Competition: Credit Markets in Transition, Federal Reserve Bank of Chicago, pp. 230-252, 1992

Posted: 4 Aug 2005

See all articles by Ramon P. DeGennaro

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

M. Cary Collins

University of Tennessee, Knoxville - Department of Finance

Fayez A. Elayan

Brock University-Goodman School of Business

James W. Wansley

University of Tennessee

Abstract

Previous work shows that firms earn statistically significant, positive abnormal returns when they announce favorable revisions of line-of-credit agreements with banks, and many explanations have been proposed. Conspicuously absent is evidence of the impact of these agreements on the other party to the transaction, the lending institution. This paper fills that void. Our evidence suggests that lenders suffer statistically significant losses during the two-day announcement period around such agreements. Lenders' losses are concentrated primarily on infrequent lenders. These firms make relatively few deals during the sample period, and relatively few per unit of time. Returns for firms which engineer many agreements are statistically not different from zero. Our evidence suggests that firms which keep in constant touch with the market for these line-of-credit agreements either have or develop a comparative advantage in engineering them.

Keywords: line of credit, banks, financial institutions

JEL Classification: G21

Suggested Citation

DeGennaro, Ramon P. and Collins, M. Cary and Elayan, Fayez A. and Wansley, James W., Sources of Value in Bank Lines of Credit: Evidence from the Lender's Perspective. Bank Structure and Competition: Credit Markets in Transition, Federal Reserve Bank of Chicago, pp. 230-252, 1992, Available at SSRN: https://ssrn.com/abstract=765728

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

M. Cary Collins

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

Fayez A. Elayan

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

James W. Wansley

University of Tennessee ( email )

428 Stokely Management Center
Knoxville, TN 37996
United States

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