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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26632
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| Title: | Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans |
| Authors: | Dahiya, Sandeep
Puri, Manju
Saunders, Anthony |
| Keywords: | Loan sales
Lending relationship
Commercial banks |
| Issue Date: | Jul-2000 |
| Series/Report no.: | FIN-00-008 |
| Abstract: | This paper examines the information content of the announcement of the
sale of a borrower’s loan by its bank. A large body of research
has documented the positive impact on a firm’s stock price around
the announcement of formation and renewal of bank lending relationships.
In light of these findings it would seem natural that when a bank
chooses to sell off its loans, the stock returns of the borrower would
be adversely affected. Our paper is the first study to test this
hypothesis. We find that the stock returns of these borrowers are
significantly negatively impacted on average for the period surrounding
the announcement of a loan sale. The post-loan sale period is also
marked by a large incidence of bankruptcy filings by the borrowers whose
loans are sold. Overall, the evidence supports the hypothesis that the
news of a bank loan sale has a negative certification impact, which is
validated by the subsequent performance of the firm whose loan is sold.
We conduct similar event study tests for those banks that engage in loan
sales and find that the stock returns of the selling banks are not
significantly impacted on average. Cross-sectional tests reveal that
loan sales were made by banks that emphasized trading income and had
relatively large Commercial and Industrial loan portfolios. For our
sample period, a bank’s capital adequacy position did not appear
to have a material effect on a bank’s decision to sell its loans. |
| URI: | http://hdl.handle.net/2451/26632 |
| Appears in Collections: | Finance Working Papers
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