Asymmetric Information: the Case of Bank Loan Commitments
نویسنده
چکیده
This study analyzes common stock return behavior around the announcement date of a bank loan commitment to a firm. The results demonstrate that loan commitments are viewed as positive when the more formal revolving credit agreement is used. Straight lines of credit do not show any significant reaction. Loan commitment announcements are associated with signals transmitted by banks and is an implied audit of the firm. One interpretation of the results is that for the loan commitment to provide relevant new information to the market, the loan commitment must confirm an identifiably concrete relationship between the bank and the firm. When investors are unable to account for some guarantee of reliability, no reaction occurs.
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