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The Wealth Effects of Bank Financing Announcements in Highly Leveraged Transactions

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  • Kracaw, William A
  • Zenner, Marc

Abstract

The authors analyze the effect of financing announcements of highly leveraged transactions on the stock prices of the banks that lead highly leveraged transaction lending syndicates. For their sample of forty-one highly leveraged transactions, the authors document that the first highly leveraged transaction and bank financing announcements result in positive wealth effects for the lending banks. They also find that these wealth effects are lower in 1985, for smaller highly leveraged transactions, and for banks with a high loan loss reserve to total asset ratio. Finally, they report that leveraged buyout targets gain about 2 percent, whereas leveraged recap targets lose about 2 percent, when the first bank financing agreement is announced. Copyright 1996 by American Finance Association.

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  • Kracaw, William A & Zenner, Marc, 1996. "The Wealth Effects of Bank Financing Announcements in Highly Leveraged Transactions," Journal of Finance, American Finance Association, vol. 51(5), pages 1931-1946, December.
    • Handle: RePEc:bla:jfinan:v:51:y:1996:i:5:p:1931-46
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    Cited by:

    1. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    2. Brown, David T. & Fee, C. Edward & Thomas, Shawn E., 2009. "Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 196-211, April.
    3. Lu, Zhengfei & Zhu, Jigao & Zhang, Weining, 2012. "Bank discrimination, holding bank ownership, and economic consequences: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 341-354.
    4. Luo, Wei & Zhang, Yi & Zhu, Ning, 2011. "Bank ownership and executive perquisites: New evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 352-370, April.
    5. Niu, Jijun, 2016. "Loan growth and bank valuations," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 185-191.
    6. Kathy Czyrnik & Linda Schmid Klein, 2004. "Who Benefits from Deregulating the Separation of Banking Activities? Differential Effects on Commercial Bank, Investment Bank, and Thrift Stock Returns," The Financial Review, Eastern Finance Association, vol. 39(2), pages 317-341, May.
    7. John M. Halstead & Shantaram Hegde & Linda Schmid Klein, 2004. "Orange County Bankruptcy: Financial Contagion in the Municipal Bond and Bank Equity Markets," The Financial Review, Eastern Finance Association, vol. 39(2), pages 293-315, May.
    8. Nobuyuki Isagawa & Satoru Yamaguchi & Tadayasu Yamashita, 2010. "Debt Forgiveness And Stock Price Reaction Of Lending Banks: Theory And Evidence From Japan," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(3), pages 267-287, September.
    9. Bharadwaj, Anu & Shivdasani, Anil, 2003. "Valuation effects of bank financing in acquisitions," Journal of Financial Economics, Elsevier, vol. 67(1), pages 113-148, January.

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