FIN-04-018 |
NYU Stern School of Business |
September 2004
Linda Allen, Hongtao Guo and Joseph Weintrop
ABSTRACT
We examine the information content of quarterly earnings announcements in the syndicated bank loan market, a hybrid
public/private debt market that is exclusively comprised of informed institutional participants. In contrast to the
literature on equity price reactions to earnings announcements, we find that bank loan returns experience no significant
response on earnings announcement dates. However, we do find significant price movements in the secondary loan market
four weeks prior to earnings announcement dates, around the time of the monthly covenant reports to members of the
syndicate. Moreover, we find that the information content in syndicated bank loan prices is most pronounced for borrowers
with predominantly intangible assets that experience declining earnings. Thus, we find evidence that when earnings
announcements convey relevant information about the borrowing firm (i.e., for informationally opaque firms with declining
creditworthiness), the syndicated bank loan market expeditiously incorporates that information into prices.
Linda Allen
Institution: Stern School of Business, New York University
Email: lallen@stern.nyu.edu
Home Page: http://www.stern.nyu.edu/~lallen
Hongtao Guo
Institution: Zicklin School of Business, Baruch College, CUNY, One Bernard Baruch Way, New York, NY 10010
Email: Hongtao_Guo@baruch.cuny.edu
Telephone: (646) 312-3207
Fax: (646) 312-3161
Joseph Weintrop
Institution: Zicklin School of Business, Baruch College, CUNY
Email: Joseph_Weintrop@baruch.cuny.edu
To download a copy of this paper click here
To request a copy of this paper click here
|