The impact of bank loan announcements on stock liquidity

Thu Phuong Pham (), Harminder Singh and Van Hoang Vu

International Review of Economics & Finance, 2023, vol. 86, issue C, 848-864

Abstract: We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realised spreads of borrowers' stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increases liquidity provision, and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment.

Keywords: Loans announcements; Stock liquidity; Transaction costs; Corporate decisions (search for similar items in EconPapers)
JEL-codes: G14 G24 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: The impact of bank loan announcements on stock liquidity (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:86:y:2023:i:c:p:848-864

DOI: 10.1016/j.iref.2023.02.009

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