Information Content in Bank Lines of Credit: Evidence from the Lender's Perspective

Research in Finance, Vol. 17, pp. 65-80, 1999

Posted: 5 Aug 2005

See all articles by Ramon P. DeGennaro

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Fayez A. Elayan

Brock University-Goodman School of Business

James W. Wansley

University of Tennessee

Abstract

Borrowers realize statistically significant, positive abnormal returns around the announcement date of line-of-credit agreements with banks, and several explanations have been proposed. Little evidence exists, however, on the influence of these agreements on the counterparty, the lending institution, and still less has examined borrower and lender returns jointly. Our paper fills that void. Our evidence suggests that lenders suffer statistically significant losses during the two-day announcement period around such agreements. These losses tend to be concentrated on infrequent lenders. These firms make relatively few deals during the sample period, and relatively few per unit of time. Returns for lenders that execute many agreements are not statistically different from zero. Our evidence suggests that lenders that keep in constant touch with the market for these line-of-credit agreements either have or develop a comparative advantage in engineering them. Future research might well focus on understanding the determinants of this advantage.

Keywords: line of credit, banks, borrowing

JEL Classification: G21

Suggested Citation

DeGennaro, Ramon P. and Elayan, Fayez A. and Wansley, James W., Information Content in Bank Lines of Credit: Evidence from the Lender's Perspective. Available at SSRN: https://ssrn.com/abstract=766285

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)

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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