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The determinants of bank loan recovery rates

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

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.

Suggested Citation

  • Khieu, Hinh D. & Mullineaux, Donald J. & Yi, Ha-Chin, 2012. "The determinants of bank loan recovery rates," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 923-933.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:923-933
    DOI: 10.1016/j.jbankfin.2011.10.005
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    More about this item

    Keywords

    Recovery rates; Ultimate recoveries; Loss given default; Credit risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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