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An analysis of bank stock price reaction to distressed borrowers: Taiwanese evidence

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  • Tseng-Chung Tang

Abstract

This paper investigates the impacts of a borrower's reorganisation plan confirmation on its lending bank's shareholder wealth. Earlier empirical research is completely silent on this research area. Using data from a sample of Taiwanese reorganised firms, this paper shows that the market discriminates among lending banks by making inferences based on their exposure to their reorganised borrower; that is, the lead lending banks experience negative wealth effects, whereas the second lending banks experience positive effects. The results also show that wealth effects are negatively related to loan collateral and rates charged on the loans as well as on corporate leverage. In addition, the reliability and robustness of the model are demonstrated by the receiver operating characteristic curves.

Suggested Citation

  • Tseng-Chung Tang, 2008. "An analysis of bank stock price reaction to distressed borrowers: Taiwanese evidence," The Service Industries Journal, Taylor & Francis Journals, vol. 30(7), pages 1159-1176, June.
    • Handle: RePEc:taf:servic:v:30:y:2008:i:7:p:1159-1176
    DOI: 10.1080/02642060802320261
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    1. Judit Montoriol Garriga, 2006. "The Effect of Relationship Lending on Frim Performance," Working Papers 0605, Departament Empresa, Universitat Autònoma de Barcelona, revised Jun 2006.
    2. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2011. "Rules versus discretion in loan rate setting," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 503-529, October.
    3. Carol Ann Northcott, 2004. "Competition in Banking: A Review of the Literature," Staff Working Papers 04-24, Bank of Canada.
    4. Pozzolo, Alberto Franco, 2004. "The Role of Guarantees in Bank Lending," Economics & Statistics Discussion Papers esdp04021, University of Molise, Department of Economics.
    5. Elsas, Ralf & Krahnen, Jan Pieter, 2002. "Collateral, relationship lending and financial distress: An empirical study on financial contracting," CFS Working Paper Series 2002/17, Center for Financial Studies (CFS).
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