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

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  • Dahiya, Sandeep

    (Georgetown U)

  • Puri, Manju

    (Stanford U)

  • Saunders, Anthony

    (New York U)

Abstract

This paper examines the information content of the announcement of a sale 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 sub-par 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 news of a bank loan sale conveys negative certification, validated by the subsequent performance of the firms whose loans are sold. We also find that selling banks are not significantly impacted.

Suggested Citation

  • Dahiya, Sandeep & Puri, Manju & Saunders, Anthony, 2001. "Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans," Research Papers 1746, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1746
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    References listed on IDEAS

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