 Economic conditions, lending competition, and evaluation effect of credit line announcements on borrowersYong-Chin Liu and Hsiang-Ju Chen Pacific-Basin Finance Journal, 2012, vol. 20, issue 3, 438-458 Abstract: This paper examines the determinants of the signaling effect of acquiring lines of credit (LCs) on borrower stock returns by testing the economic conditions and lending competition hypotheses. The economic conditions hypothesis is tested by examining the loan cyclicality and handpicking effects. The former predicts a negative relationship between economic conditions and borrower returns because of banks' loose (strict) screening practices in a booming (recessionary) economy, whereas the latter expects a positive relation around the time of the LC announcements. The lending competition hypothesis proposes that the more competitive the lending market is, the looser the banks' screening practices will be. Thus, a negative competition-borrower relation will result. Using LC data from 2001 to 2010 concerning 501 stock-listed firms in Taiwan, we find that evidence supports the lending competition hypothesis and the handpicking effect of the economic conditions hypothesis. Keywords: Line of credit; Information asymmetry; Loan cyclicality effect; Handpicking effect; Lending market competition (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:20:y:2012:i:3:p:438-458 DOI: 10.1016/j.pacfin.2011.12.006 Access Statistics for this article Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee More articles in Pacific-Basin Finance Journal from Elsevier |
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