Journal of Finance Vol. 58 No. 1 2003
Financial Distress and Bank Lending Relationships
Abstract
We use a unique data set of bank loans to examine the wealth effects on lead lending banks when their borrowers suffer financial distress. We find a significant negative announcement return for the lead lending bank when a major corporate borrower announces default or bankruptcy. Banks with higher exposure to the distressed firm have larger negative announcement‐period returns. The existence of a past lending relationship with the distressed firm results in larger wealth declines for the bank shareholders. Finally, financial distress also has a significant negative effect on borrower's returns.
- DOI
- 10.1111/1540-6261.00528
- Volume
- 58
- Issue
- 1
- Pages
- 375-399
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref