Abstract

https://ssrn.com/abstract=891304
 
 

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Loan Resales, Asset Selection and Borrowing Cost


Mark J. Kamstra


York University - Schulich School of Business

Gordon S. Roberts


York University - Schulich School of Business

Pei Shao


January 2006

EFA 2006 Zurich Meetings

Abstract:     
While a number of studies have addressed the motivations for, and interrelationships among loan sales, bank risk and liquidity, little empirical consideration has been given to banks' selection of loans for sale or to how loan resales impact initial loan pricing. The results suggest that shedding lower quality loans features prominently as a motive for secondary loan sales. Furthermore, a strong positive association is revealed between the ex ante probability of loan resales and the primary market loan spread. A change in the probability of loan resales from zero to one hundred percent elicits an increase in the primary loan spread of approximately 100 basis points, causing an adverse effect on borrowers. We conclude that loan resales represent a negative-information event and speculate that some of this negative impact results from the reduced monitoring efforts associated with a loan resale.

Number of Pages in PDF File: 61

Keywords: Loan resales, syndicated loan, secondary loan market, financial institutions

JEL Classification: G32


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Date posted: March 16, 2006  

Suggested Citation

Kamstra, Mark J. and Roberts, Gordon S. and Shao, Pei, Loan Resales, Asset Selection and Borrowing Cost (January 2006). EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=891304 or http://dx.doi.org/10.2139/ssrn.891304

Contact Information

Mark J. Kamstra
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Gordon S. Roberts
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)
No contact information is available for Pei Shao
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