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Industry contagion in loan spreads

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  • Hertzel, Michael G.
  • Officer, Micah S.

Abstract

Spreads on new and renegotiated corporate loans are significantly higher when the loan originates (or is renegotiated) in the two years surrounding bankruptcy filings by industry rivals. This industry-specific contagion is particularly severe in the middle of industry bankruptcy waves. Furthermore, this contagion in loan spreads is mitigated in concentrated industries, consistent with the hypothesis and evidence in Lang and Stulz (1992) that bankruptcy filings in concentrated industries can have positive consequences for rivals (increased market share and/or power). There is also some evidence that contagion affects non-spread terms in loan contracts.

Suggested Citation

  • Hertzel, Michael G. & Officer, Micah S., 2012. "Industry contagion in loan spreads," Journal of Financial Economics, Elsevier, vol. 103(3), pages 493-506.
    • Handle: RePEc:eee:jfinec:v:103:y:2012:i:3:p:493-506
    DOI: 10.1016/j.jfineco.2011.10.012
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    References listed on IDEAS

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    More about this item

    Keywords

    Bankruptcy; Financial distress; Contagion; Loan spreads;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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