Financial Distress and Bank Lending Relationships | Zendy

Dahiya Sandeep | Zendy; Saunders Anthony | Zendy; Srinivasan Anand | Zendy

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Financial Distress and Bank Lending Relationships

Author(s) -

Dahiya Sandeep,

Saunders Anthony,

Srinivasan Anand

Publication year - 2003

Publication title -

the journal of finance

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 18.151

H-Index - 299

eISSN - 1540-6261

pISSN - 0022-1082

DOI - 10.1111/1540-6261.00528

Subject(s) - bankruptcy , financial distress , shareholder , financial system , business , distress , monetary economics , economics , finance , corporate governance , ecology , biology

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.

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