Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153457
Authors: 
Ongena, Steven
Roscovan, Viorel
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1023
Abstract: 
Banks play a special role as providers of informative signals about the quality and value of their borrowers. Such signals, however, may have a quality of their own as the banks’ selection and monitoring abilities may differ. Using an event study methodology, we study the importance of the geographical origin and organization of the banks for the investors’ assessments of firms’ credit quality and economic worth following loan announcements. Our sample comprises 986 announcements of bank loans to U.S. firms over the period of 1980- 2003. We find that investors react positively to such announcements if the loans are made by foreign or local banks, but not if the loans are made by banks that are located outside the firm’s headquarters state. Investor reaction is, in fact, the largest when the bank is foreign. Our evidence suggest that investors value relationships with more competitive and skilled banks rather than banks that have easier access to private information about the firms. These results are applicable also to the European markets where regulatory and economic borders do not coincide and bank identities and reputation seem to matter a great deal.
Subjects: 
bank organization
bank origin
loan announcement return
relationship banking
JEL: 
G21
G32
H11
D80
Document Type: 
Working Paper

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