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Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans

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  • Sandeep Dahiya

    (Georgetown University)

  • Manju Puri

    (Duke University and National Bureau of Economic Research)

  • Anthony Saunders

    (New York University)

Abstract

This article examines the information content of the sale announcement of a borrower's loans by its lending bank. We find significant negative stock returns for the borrower on the loan sale announcement, particularly for subpar loan sales, where the bank's information advantage is greatest. Further, a large proportion of these borrowers file for bankruptcy after the loan sale. The evidence supports the hypothesis that the news of a bank loan sale conveys negative certification, which is validated by the subsequent performance of the firms whose loans are sold. We also find that the selling banks are not significantly affected.

Suggested Citation

  • Sandeep Dahiya & Manju Puri & Anthony Saunders, 2003. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," The Journal of Business, University of Chicago Press, vol. 76(4), pages 563-582, October.
  • Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:4:p:563-582
    DOI: 10.1086/377031
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    References listed on IDEAS

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    1. Pennacchi, George G, 1988. " Loan Sales and the Cost of Bank Capital," Journal of Finance, American Finance Association, vol. 43(2), pages 375-396, June.
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    12. Billett, Matthew T & Flannery, Mark J & Garfinkel, Jon A, 1995. "The Effect of Lender Identity on a Borrowing Firm's Equity Return," Journal of Finance, American Finance Association, vol. 50(2), pages 699-718, June.
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