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Are Banks Still Special? New Evidence on Their Role in the Corporate Capital-Raising Process

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  • Christopher James
  • David C. Smith
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    Abstract

    Bankers appear to play a special role in providing commitment-based financing to corporations. This type of lending is important not only for small firms that lack access to public debt markets but for large and medium-size companies as well. For such companies, commitment-based financing provides access to debt capital that becomes valuable when the firm has an immediate need for funding but interest rates in public debt markets are prohibitively high, or the firm is undervalued by the market. A good example of this was provided by the Asian crisis in the last quarter of 1998, when $10 billion of commercial paper was retired and $20 billion of net new commercial loans were booked. The authors also suggest that the fact that commitment-based financing is used by larger companies when they believe themselves to be undervalued in the market is probably the best explanation of why announcements of these types of loans elicit a positive stock price reaction. 2000 Morgan Stanley.

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    Bibliographic Info

    Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

    Volume (Year): 13 (2000)
    Issue (Month): 1 ()
    Pages: 52-63

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    Handle: RePEc:bla:jacrfn:v:13:y:2000:i:1:p:52-63

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    Cited by:
    1. M. Hashem Pesaran & Til Schuermann & Bjorn-Jakob Treutler, 2007. "Global Business Cycles and Credit Risk," NBER Chapters, in: The Risks of Financial Institutions, pages 419-474 National Bureau of Economic Research, Inc.
    2. Dahiya, Sandeep & Puri, Manju & Saunders, Anthony, 2001. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," Research Papers 1746, Stanford University, Graduate School of Business.
    3. Ulf von Lilienfeld-Toal & Dilip Mookherjee & Sujata Visaria, 2009. "The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-183, Boston University - Department of Economics.
    4. David Smith, 2002. "Loans to Japanese borrowers," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    5. Chen, Jiawei & Song, Kejun, 2013. "Two-sided matching in the loan market," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 145-152.
    6. Denis, David J. & Mihov, Vassil T., 2003. "The choice among bank debt, non-bank private debt, and public debt: evidence from new corporate borrowings," Journal of Financial Economics, Elsevier, vol. 70(1), pages 3-28, October.
    7. Akhigbe, Aigbe & Stevenson, Bradley A., 2010. "Profit efficiency in U.S. BHCs: Effects of increasing non-traditional revenue sources," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(2), pages 132-140, May.
    8. Narayanan, Rajesh P. & Rangan, Kasturi P. & Rangan, N.K.Nanda K., 2004. "The role of syndicate structure in bank underwriting," Journal of Financial Economics, Elsevier, vol. 72(3), pages 555-580, June.
    9. Sudheer Chava & Amiyatosh Purnanandam, 2006. "The effect of a banking crisis on bank-dependent borrowers," Proceedings 1030, Federal Reserve Bank of Chicago.
    10. Smith, David C., 2003. "Loans to Japanese borrowers," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 283-304, September.
    11. Marsh , Ian W, 2006. "The effect of lenders’ credit risk transfer activities on borrowing firms’ equity returns," Research Discussion Papers 31/2006, Bank of Finland.
    12. David C. Smith, 2002. "Loans to Japanese borrowers," Pacific Basin Working Paper Series 2002-11, Federal Reserve Bank of San Francisco.
    13. Jiawei Chen, 2006. "Two-Sided Matching and Spread Determinants in the Loan Market," Working Papers 060702, University of California-Irvine, Department of Economics.
    14. PICARD, Pierre & RUSLI, Ridwan D., 2012. "State owned firms: private debt, cost revelation and welfare," CORE Discussion Papers 2012047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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