We investigate the nature of mid-loan relationships between bank-lenders and borrowers, to test whether firms borrow from banks to signal quality. Using the LPC DealScan, CRSP, and Wall Street Journal databases, we test whether borrower abnormal returns are related to bank, borrower, deal, and/or event characteristics during the duration of the loan. We demonstrate that borrower abnormal returns are related to mid-loan bank events, defined as an event resulting in bank abnormal returns beyond a specified threshold. The results suggest that borrowers are affected by bank events mid-loan, even when the event is not directly related to bank default.
Gottesman, A.A. and Roberts, G.S. (2005), "An investigation of the mid-loan relationship between bank lenders and borrowers", Chen, A.H. (Ed.) Research in Finance (Research in Finance, Vol. 22), Emerald Group Publishing Limited, Bingley, pp. 273-303. https://doi.org/10.1016/S0196-3821(05)22010-5Download as .RIS
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