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Are Banks Still Special When There Is a Secondary Market for Loans?
Author(s) -
GANDE AMAR,
SAUNDERS ANTHONY
Publication year - 2012
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.1540-6261.2012.01769.x
Subject(s) - secondary market , equity (law) , business , loan , monetary economics , financial system , stock market , stock (firearms) , non conforming loan , finance , economics , non performing loan , stock exchange , mechanical engineering , paleontology , horse , political science , law , biology , engineering
Secondary market trading in loans elicits a significant positive stock price response by a borrowing firm's equity investors. We find the major reason for this response is the alleviation of borrowing firms’ financial constraints. We also find that new loan announcements are associated with a positive stock price effect even when prior loans made to the same borrower already trade on the secondary market. We conclude that the special role of banks has changed due to their ability to create an active secondary loan market while simultaneously maintaining their traditional role as information producers.