FIN-04-001 |
NYU Stern School of Business |
February 2004
Edward Altman, Amar Gande, and Anthony Saunders
ABSTRACT
This paper examines the informational efficiency of loans relative to bonds surrounding
loan default dates and bond default dates. We examine this issue using a
unique dataset of daily secondary market prices of loans over the 11/1999-06/2002
period. We find evidence consistent with a monitoring role of loans. Specifically, consistent
with a view that the monitoring role of loans should be reflected in more precise
expectations embedded in loan prices, we find that the price decline of loans is less adverse
than that of bonds of the same borrower around loan and bond default dates.
Additionally, we find evidence that the difference in price decline of loans versus bonds
is amplified around loan default dates that are not preceded by a bond default date of
the same company. Our results are robust to several alternative explanations, and to
controlling for security-specific characteristics, such as seniority, collateral, covenants,
and for multiple measures of cumulative abnormal returns. Overall, we find that the
loan market is informationally more efficient than the bond market around loan default
dates and bond default dates.
Classification: G14, G21, G22
Edward I. Altman
Institution: Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012
Telephone: (212) 998-0709
Email: ealtman@stern.nyu.edu
Homepage:http://www.stern.nyu.edu/~ealtman
Amar Gande
Institution: Owen Graduate School of
Management, Vanderbilt University, 401 21st Ave South, Nashville, TN 37203
Telephone: (615) 343-7322
Fax: (615) 343-7177
Email: amar.gande@owen.vanderbilt.edu
Anthony Saunders
Institution: John M. Schiff, Professor of Finance, Leonard N. Stern School of Business, New York University
Telephone: 212-998-0711
Fax: 212-995-4233
Email: asaunder@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~asaunder
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