Local bankruptcy and geographic contagion in the bank loan market

Jawad M. Addoum; Alok Kumar; Nhan Le; Alexandra Niessen-Ruenzi

doi:10.1093/rof/rfz023

Local bankruptcy and geographic contagion in the bank loan market

Jawad M. Addoum, Alok Kumar, Nhan Le, Alexandra Niessen-Ruenzi

Research output: Contribution to journal › Article › peer-review

15 Citations (Scopus)

Abstract

We examine whether corporate bankruptcies influence bank loan characteristics of geographically proximate firms. Controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads. The effect is transitory and cannot be fully explained by local correlated information or lenders' financial health. Instead, the effect is more pronounced for informationally opaque bankruptcies and borrowers, and weakened among loans with relationship lenders and lenders with significant local presence.

Original language	English
Pages (from-to)	997-1037
Number of pages	41
Journal	Review of Finance
Volume	24
Issue number	5
DOIs	https://doi.org/10.1093/rof/rfz023
Publication status	Published - 1 Sept 2020

Access to Document

10.1093/rof/rfz023

Cite this

@article{1ea2ea3e9f92401bb18ffb9b2ac199ef,

title = "Local bankruptcy and geographic contagion in the bank loan market",

abstract = "We examine whether corporate bankruptcies influence bank loan characteristics of geographically proximate firms. Controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads. The effect is transitory and cannot be fully explained by local correlated information or lenders' financial health. Instead, the effect is more pronounced for informationally opaque bankruptcies and borrowers, and weakened among loans with relationship lenders and lenders with significant local presence.",

keywords = "Bank loans, Corporate bankruptcy, Geographic contagion",

author = "Addoum, {Jawad M.} and Alok Kumar and Nhan Le and Alexandra Niessen-Ruenzi",

note = "Publisher Copyright: {\textcopyright} The Author(s) 2019. Published by Oxford University Press on behalf of the European Finance Association.",

year = "2020",

month = sep,

day = "1",

doi = "10.1093/rof/rfz023",

language = "English",

volume = "24",

pages = "997--1037",

journal = "Review of Finance",

issn = "1572-3097",

publisher = "Oxford University Press ",

number = "5",

}

TY - JOUR

T1 - Local bankruptcy and geographic contagion in the bank loan market

AU - Addoum, Jawad M.

AU - Kumar, Alok

AU - Le, Nhan

AU - Niessen-Ruenzi, Alexandra

N1 - Publisher Copyright: © The Author(s) 2019. Published by Oxford University Press on behalf of the European Finance Association.

PY - 2020/9/1

Y1 - 2020/9/1

N2 - We examine whether corporate bankruptcies influence bank loan characteristics of geographically proximate firms. Controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads. The effect is transitory and cannot be fully explained by local correlated information or lenders' financial health. Instead, the effect is more pronounced for informationally opaque bankruptcies and borrowers, and weakened among loans with relationship lenders and lenders with significant local presence.

AB - We examine whether corporate bankruptcies influence bank loan characteristics of geographically proximate firms. Controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads. The effect is transitory and cannot be fully explained by local correlated information or lenders' financial health. Instead, the effect is more pronounced for informationally opaque bankruptcies and borrowers, and weakened among loans with relationship lenders and lenders with significant local presence.

KW - Bank loans

KW - Corporate bankruptcy

KW - Geographic contagion

UR - http://www.scopus.com/inward/record.url?scp=85096970315&partnerID=8YFLogxK

U2 - 10.1093/rof/rfz023

DO - 10.1093/rof/rfz023

M3 - Article

SN - 1572-3097

VL - 24

SP - 997

EP - 1037

JO - Review of Finance

JF - Review of Finance

IS - 5

ER -

Local bankruptcy and geographic contagion in the bank loan market

Abstract

Access to Document

Other files and links

Fingerprint

Cite this