Market Response to Syndicated Loan Announcements During the Global Financial Crisis: Failed vs. Acquiring Banks

Abstract

We evaluate and compare market reaction to syndicated loan announcements for two sets of high-profile banks, consisting of five banks that failed in 2008 during the financial crisis and the five banks that ultimately acquired them. Results show that loan announcements are viewed differently for the two sets of banks when partitioned on loan type, loan purpose and information asymmetry. In addition to event study analysis we analyze differences in loan attributes and borrower risk characteristics for the two groups. Additional evidence on the impact of the financial crisis is shown by comparing loan announcements for the acquiring banks during pre- versus post-crisis periods. Our findings highlight the importance of the role of the syndicate in supporting the borrowers of failed banks and the timeliness with which the government encouraged the mergers or sale.