Bank loan announcements and borrower stock returns: does bank origin matter?
Steven Ongena and
Viorel Roscovan
No 1023, Working Paper Series from European Central Bank
Abstract:
Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks' selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors' assessments of firms' credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to U.S. firms over the period of 1980- 2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm's headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal. JEL Classification: G21, G32, H11, D80
Keywords: bank organization; bank origin; loan announcement return; relationship banking (search for similar items in EconPapers)
Date: 2009-03
New Economics Papers: this item is included in nep-ban, nep-cta and nep-fmk
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Journal Article: Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter? (2013) 
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091023
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