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Industry contagion in loan spreads

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

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 103 (2012)
    Issue (Month): 3 ()
    Pages: 493-506

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    Handle: RePEc:eee:jfinec:v:103:y:2012:i:3:p:493-506

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Bankruptcy; Financial distress; Contagion; Loan spreads;

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    References

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    Cited by:
    1. Chen, Peimin & Wu, Chunchi, 2014. "Default prediction with dynamic sectoral and macroeconomic frailties," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 211-226.
    2. Lin, Chen & Officer, Micah S. & Wang, Rui & Zou, Hong, 2013. "Directors' and officers' liability insurance and loan spreads," Journal of Financial Economics, Elsevier, vol. 110(1), pages 37-60.

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