Dahiya, Sandeep, Anthony Saunders and Anand Srinivasan, "Financial Distress and Bank Lending Relationships", Journal of Finance, Vol. 58, No. 1, (February 2003), pp. 375-399.

Abstract: We use a unique data set of bank loans to examine the wealth effects on lead lending banks when their borrowers suffer financial distress. We find a significant negative announcement return for the lead lending bank when a major corporate borrower announces default or bankruptcy. Banks with higher exposure to the distressed firm have larger negative announcement-period returns. The existence of a past lending relationship with the distressed firm results in larger wealth declines for the bank shareholders. Finally, financial distress also has a significant negative effect on borrower's returns.

JEL Classification: G33, G21.

Keywords: Financial Distress, Lending Relationships.

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