Billett is from the Federal Deposit Insurance Corporation, Washington, D.C. Flannery is from the University of Florida, Garfinkel is from Loyola University, Chicago. We would like to thank the following people for helpful comments on earlier drafts: George Benston, Dave Brown, Susan Chaplinsky, Allaudeen Hameed, Rob Hansen, Joel Houston, Cris James, Simon Kwan, Jim Wansley, the referee, the editor (René Stulz), and seminar participants at the Universities of Arizona, British Columbia, and Calgary, the Virginia Polytechnic Institute, Florida State University, the Federal Reserve Board, and Concordia University. Mr Jerome Fons of Moody's Investor Services generously provided the data on lender credit ratings. We are responsible for any remaining errors. This work was largely completed while Matthew Billett and Jon Garfinkel were at the University of Florida. The analysis and conclusions of this article are those of the authors and do not indicate compliance with the views of the FDIC.
The Effect of Lender Identity on a Borrowing Firm's Equity Return
Article first published online: 30 APR 2012
1995 The American Finance Association
The Journal of Finance
Volume 50, Issue 2, pages 699–718, June 1995
How to Cite
BILLETT, M. T., FLANNERY, M. J. and GARFINKEL, J. A. (1995), The Effect of Lender Identity on a Borrowing Firm's Equity Return. The Journal of Finance, 50: 699–718. doi: 10.1111/j.1540-6261.1995.tb04801.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Previous research demonstrates that a firm's common stock price tends to fall when it issues new public securities. By contrast, commercial bank loans elicit significantly positive borrower returns. This article investigates whether the lender's identity influences the market's reaction to a loan announcement. Although we find no significant difference between the market's response to bank and nonbank loans, we do find that lenders with a higher credit rating are associated with larger abnormal borrower returns. This evidence complements earlier findings that an auditor's or investment banker's perceived “quality” signals valuable information about firm value to uninformed market investors.