Industry contagion in loan spreads

Michael G. Hertzel and Micah S. Officer

Journal of Financial Economics, 2012, vol. 103, issue 3, 493-506

Abstract: Spreads on new and renegotiated corporate loans are significantly higher when the loan originates (or is renegotiated) in the two years surrounding bankruptcy filings by industry rivals. This industry-specific contagion is particularly severe in the middle of industry bankruptcy waves. Furthermore, this contagion in loan spreads is mitigated in concentrated industries, consistent with the hypothesis and evidence in Lang and Stulz (1992) that bankruptcy filings in concentrated industries can have positive consequences for rivals (increased market share and/or power). There is also some evidence that contagion affects non-spread terms in loan contracts.

Keywords: Bankruptcy; Financial distress; Contagion; Loan spreads (search for similar items in EconPapers)
JEL-codes: G30 G33 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (67)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:103:y:2012:i:3:p:493-506

DOI: 10.1016/j.jfineco.2011.10.012

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