Information content of bank loan announcements
Boscaljon, Brian L.
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This study contributes to the understanding of the information content of bank loan announcements. More specifically this study examines individual borrowing firm common stock price reactions to three different aspects associated with bank loan announcements: the amount of information available prior to the loan armouncement, the uncertainty of the borrower's credit worthiness, and the loan purpose that may imply confidential information. The findings of this study provide additional insights regarding the role of commercial banks as information producers, information gatherers and monitors of confidential information. The results of this study suggest that the number of analysts is an important determinant of the information content of bank loan announcements. The amount of information conveyed through loan announcements is inversely related to the number of analysts. These findings suggest the amount of information available for a borrowing firm is an important determinant for information content in bank loan announcements. After controlling for the amount of available information, excess stock returns are significant at the 1% level for announcements for both new loans and renewals where the stated purpose of the loan was for capital expenditures. Positive excess stock returns are also significant for loan aimouncements where the amount of the loan relative to the market size of the fum is large. This evidence supports the hypothesis that bank loans signal confidential information.