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

20 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

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10.1093/rof/rfz023

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

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AU - Kumar, Alok

AU - Le, Nhan

AU - Niessen-Ruenzi, Alexandra

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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

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DO - 10.1093/rof/rfz023

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Local bankruptcy and geographic contagion in the bank loan market

Abstract

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