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 U
Anthony Saunders: New York U

Research Papers from Stanford University, Graduate School of Business

Abstract: This paper examines the information content of the announcement of a sale 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 sub-par 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 news of a bank loan sale conveys negative certification, validated by the subsequent performance of the firms whose loans are sold. We also find that selling banks are not significantly impacted.

Date: 2001-12
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Journal Article: Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans (2003)
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