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The Wealth Effects of Bank Financing Announcements in Highly Leveraged Transactions
Author(s) -
KRACAW WILLIAM A.,
ZENNER MARC
Publication year - 1996
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/j.1540-6261.1996.tb05232.x
Subject(s) - business , leveraged buyout , stock (firearms) , loan , asset (computer security) , finance , sample (material) , financial system , monetary economics , economics , private equity , mechanical engineering , chemistry , computer security , chromatography , computer science , engineering
We analyze the effect of financing announcements of highly leveraged transactions (HLTs) on the stock prices of the banks that lead HLT‐lending syndicates. For our sample of 41 HLTs, we document that the first HLT and bank financing announcements result in positive wealth effects for the lending banks. We also find that these wealth effects are lower in 1985, for smaller HLTs, and for banks with a high loan loss reserve to total asset ratio. Finally, we report that Leveraged Buyout (LBO) targets gain about 2 percent, whereas leveraged recap targets lose about 2 percent, when the first bank financing agreement is announced.