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Bank Loans to Newly Public Firms

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  • Sherrill Shaffer

    (University of Wyoming)

  • Tatyana Sokolyk

    (Brock University)

Abstract

Prior studies have shown that newly public firms exhibit a high degree of uncertainty and asymmetric information, with few reliable sources of information. These findings suggest that investors could benefit if some independent party is able to assess the quality of a newly public firm. Since other studies have found that banks can reduce information asymmetry about firms that borrow, we examine whether banks provide information about the quality of newly public firms. We find that bank lending is consistently associated with positive long-term outcomes-newly public firms that borrow experience significantly smaller decreases in operating performance and better long-term stock performance than non-borrowers.

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Bibliographic Info

Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance.

Volume (Year): 16 (2013)
Issue (Month): 2 (Spring)
Pages: 33-56

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Handle: RePEc:pep:journl:v:16:y:2013:i:2:p:33-56

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Related research

Keywords: Newly public firms; Bank lending; IPO;

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References

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  1. Lin, Hsiou-wei & McNichols, Maureen F., 1998. "Underwriting relationships, analysts' earnings forecasts and investment recommendations," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 25(1), pages 101-127, February.
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  6. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 689-721, August.
  7. Rajan, Raghuram & Winton, Andrew, 1995. " Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, American Finance Association, vol. 50(4), pages 1113-46, September.
  8. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, Elsevier, vol. 19(2), pages 217-235, December.
  9. Black, Fischer, 1975. "Bank funds management in an efficient market," Journal of Financial Economics, Elsevier, Elsevier, vol. 2(4), pages 323-339, December.
  10. Campbell, Tim S & Kracaw, William A, 1980. " Information Production, Market Signalling, and the Theory of Financial Intermediation," Journal of Finance, American Finance Association, American Finance Association, vol. 35(4), pages 863-82, September.
  11. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, Elsevier, vol. 15(1-2), pages 31-60.
  12. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, Elsevier, vol. 25(1), pages 99-122, November.
  13. James S. Ang & James C. Brau, 2002. "Firm Transparency and the Costs of Going Public," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(1), pages 1-17.
  14. Billett, Matthew T. & Flannery, Mark J. & Garfinkel, Jon A., 2006. "Are Bank Loans Special? Evidence on the Post-Announcement Performance of Bank Borrowers," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 41(04), pages 733-751, December.
  15. Gonzalez, Laura & James, Christopher, 2007. "Banks and bubbles: How good are bankers at spotting winners?," Journal of Financial Economics, Elsevier, Elsevier, vol. 86(1), pages 40-70, October.
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