Financial Distress and Bank Lending Relationships

Posted: 8 Jan 2004

See all articles by Sandeep Dahiya

Sandeep Dahiya

Georgetown University - Department of Finance

Anthony Saunders

New York University - Leonard N. Stern School of Business

Anand Srinivasan

National University of Singapore - Department of Finance

Abstract

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.

Suggested Citation

Dahiya, Sandeep and Saunders, Anthony and Srinivasan, Anand, Financial Distress and Bank Lending Relationships. Available at SSRN: https://ssrn.com/abstract=377118

Sandeep Dahiya (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3832 (Phone)

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Anand Srinivasan

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

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