Local bankruptcy and geographic contagion in the bank loan market

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

Research output: Contribution to journalArticlepeer-review

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 languageEnglish (US)
Pages (from-to)997-1037
Number of pages41
JournalReview of Finance
Volume24
Issue number5
DOIs
StatePublished - Sep 1 2020

Keywords

  • Bank loans
  • Corporate bankruptcy
  • Geographic contagion

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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