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The determinants of bank loan recovery rates

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  • Khieu, Hinh D.
  • Mullineaux, Donald J.
  • Yi, Ha-Chin
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    Abstract

    Using Moody’s Ultimate Recovery Database, we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than are borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 4 ()
    Pages: 923-933

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:923-933

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Recovery rates; Ultimate recoveries; Loss given default; Credit risk;

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    References

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    Cited by:
    1. Norden, Lars & van Kampen, Stefan, 2013. "Corporate leverage and the collateral channel," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5062-5072.
    2. Wilko Bolt & Leo de Haan & Marco Hoeberichts & Maarten van Oordt & Job Swank, 2010. "Bank Profitability during Recessions," DNB Working Papers 251, Netherlands Central Bank, Research Department.
    3. Nada Mora, 2013. "Creditor recovery: the macroeconomic dependence of industry equilibrium," Research Working Paper RWP 13-06, Federal Reserve Bank of Kansas City.

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