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Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter?


  • We are grateful to an anonymous associate editor, Sudipto Dasgupta (editor), Abe de Jong, Don Fraser, Philipp Hartman, Marie Hoerova, James Kolari, Fabiana Penas, José-Luis Peydró, Sorin Sorescu, Bas Werker, Lucy White, and participants at the CAREFIN Conference 2009 (Milano) for helpful comments and suggestions. The article was partly completed while Roscovan was visiting the Department of Finance at the Mays Business School of Texas A&M University, whose hospitality is gratefully acknowledged. This article has been prepared by the authors under the Lamfalussy Fellowship Program sponsored by the European Central Bank. Any views expressed are only those of the authors and do not necessarily represent the views of the European Central Bank or the Eurosystem.

Viorel Roscovan

Department of Finance

RSM – Erasmus University

PO Box 1738

NL 3062 PA Rotterdam

The Netherlands


Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks' selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors' assessments of firms' credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to US firms over the period of 1980–2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm's headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal.