Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans

Sandeep Dahiya, Manju Puri and Anthony Saunders
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Sandeep Dahiya: Georgetown University
Anthony Saunders: New York University

The Journal of Business, 2003, vol. 76, issue 4, 563-582

Abstract: This article examines the information content of the sale announcement of a borrower's loans by its lending bank. We find significant negative stock returns for the borrower on the loan sale announcement, particularly for subpar loan sales, where the bank's information advantage is greatest. Further, a large proportion of these borrowers file for bankruptcy after the loan sale. The evidence supports the hypothesis that the news of a bank loan sale conveys negative certification, which is validated by the subsequent performance of the firms whose loans are sold. We also find that the selling banks are not significantly affected.

Date: 2003
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Working Paper: Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:76:y:2003:i:4:p:563-582

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