Financial Distress and Bank Lending Relationships

Sandeep Dahiya, Anthony Saunders and Anand Srinivasan

Journal of Finance, 2003, vol. 58, issue 1, 375-399

Abstract: We use a unique data set of bank loans to examine the wealth effects on lead lending banks when their borrowers suffer financial distress. We find a significant negative announcement return for the lead lending bank when a major corporate borrower announces default or bankruptcy. Banks with higher exposure to the distressed firm have larger negative announcement‐period returns. The existence of a past lending relationship with the distressed firm results in larger wealth declines for the bank shareholders. Finally, financial distress also has a significant negative effect on borrower's returns.

Date: 2003
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https://doi.org/10.1111/1540-6261.00528

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:58:y:2003:i:1:p:375-399

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