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Are Bank Loans Special? Evidence on the Post-Announcement Performance of Bank Borrowers

  • Billett, Matthew T.
  • Flannery, Mark J.
  • Garfinkel, Jon A.

Unlike seasoned equity or public debt offerings, bank loan financing elicits a significantly positive announcement return, which has led financial economists to characterize bank loans as “special.” Here, we find that firms announcing bank loans suffer negative abnormal stock returns over the subsequent three years. In the long run, bank loans appear no different from seasoned equity offerings or public debt issues. Our evidence suggests that larger loans (relative to borrower equity) are followed by worse stock performance. We also find that lender protection is negatively related to borrower performance, suggesting the lender is somewhat shielded from the poor performance.

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Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 41 (2006)
Issue (Month): 04 (December)
Pages: 733-751

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Handle: RePEc:cup:jfinqa:v:41:y:2006:i:04:p:733-751_00
Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
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