Event-study driven research has produced a consensus that loans are unique relative to other financial contracts. But these studies assume that small samples of loan announcements adequately represent the loan population. We find that loan announcements are rare and driven by factors such as information asymmetry and perceived materiality. We show that the sample used by Billett, Flannery, and Garfinkel (1995) fails to represent the loan universe and that significant abnormal announcement returns are confined to their smallest firms. Our sample, which better represents the loan population, produces an abnormal return insignificantly different from zero. The findings suggest that self-selection bias affects extant loan announcement research and do not support the views that loans are a special form of finance or that private and public debt differ in significant ways. Were all loans to be announced, the average abnormal return would likely be insignificant.

We compare underwriting performance by commercial bank-affiliated firms (Section 20s) and traditional investment banks over the period 1995–1998. We find that gross spreads are lower in the case of Section 20 underwritings, but that yield spreads are not. Our sample includes a substantial number of observations following changes in Federal Reserve policies that substantially eased restrictions on Section 20 activities in early 1997. Our findings differ somewhat from results in the literature that focused on periods prior to these policy changes. We find, for example, no evidence that a prior commercial bank lending relationship influences underwriting yields for any type of issue. Our results also fail to confirm earlier evidence that collective Section 20 underwritings produce a favorable competitive effect on gross spreads and yield spreads. We find substantial evidence that both the underwriting mix and the underwriting process are relevant to the behavior of gross spreads and yield spreads over the sample period.

This paper analyzes the market for syndicated loans, a hybrid of private and public debt, which has grown at well over a 20% rate annually over the past decade and which totaled over $1 trillion in 1997. We identify empirically the factors that influence a bank or nonbank's decision to syndicate a loan and the determinants of the proportion of the loan sold in the event of syndication. The evidence reveals a loan is more likely to be syndicated as information about the borrower becomes more transparent, as the syndicate's managing agent becomes more “reputable”, and as the loan's maturity increases. The lead manager holds larger proportions of information-problematic loans in its own portfolio. Loan syndications, like loan sales, appear to be motivated, in part, by capital regulations, and the liquidity position of the agent bank influences the likelihood of syndication, but not the extent. Our results confirm that information and agency problems affect the salability of debt claims and the extent to which a loan is “transaction oriented” rather than “relationship oriented” in the sense of A. Boot and A. Thakor (2000, J. Finance54, 679–713). Journal of Economic Literature Classification Numbers: D82, G20, G21, G24.

Using Moody’s Ultimate Recovery Database, we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than are borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient.