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How have banks fared following a borrower's financial distress?

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  • Chi, Li-Chiu

Abstract

This paper is the first to study the impact of a borrower's reorganization filing on its lead lending bank and second lending bank. This study analyzes 96 reorganization filings in Taiwan during the period 1995-2006. It is substantiated that the market's reaction to these filings is not indiscriminate and that the forbearance lending to a reorganization filing borrower suggests the lead bank's little concern for its shareholder wealth. Additionally, the second lending banks experience stock price reactions in the opposite manner to those of the lead lending banks, indicating dominant positive effects. The multinomial logistic regression results show that smaller banks are likely to have lower equity volatility than larger ones. Meanwhile, this paper proposes an innovative application by providing an empirical exposition of the receiver operating characteristic curve analysis, and by presenting the results of the model's performance in reliability and robustness.

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  • Chi, Li-Chiu, 2009. "How have banks fared following a borrower's financial distress?," Economic Modelling, Elsevier, vol. 26(2), pages 480-488, March.
    • Handle: RePEc:eee:ecmode:v:26:y:2009:i:2:p:480-488
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