Impact of Bank Loans on Market Reactions: Evidence from France
Are bank loans still special during financial crises? This study examines the impact of bank loan announcements on firm value, focusing on French borrowers from 2000 to 2009. Analysis includes stock market reactions, loan terms, syndicate features, and borrower characteristics during and before the crisis.
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Bank loans and borrower value during the recent financial crisis Empirical evidence from France Christophe J. Godlewski UHA & EM Strasbourg (LaRGE Research Center) Corporate Finance Day 2012, Ghent
Outline 1. Summary 2. Literature & Hypotheses 3. Empirical strategy 4. Results 5. Discussion 2 Christophe J, Godlewski, UHA & EM Strasbourg
Summary Are bank loans (still) special ? Impact of bank loan announcements on firm s value Event study using 253 large loans to French borrowers (01/2000 - 12/2009) Comparison before and during the crisis Bank loan terms + syndicate & firm characteristics Stock market reaction to bank loan announcements Stock market reaction to bank loan terms, syndicate features, borrower characteristics Main results Market reaction is negative during crisis Change in bank loan terms & syndicate features during the crisis Negative and positive reactions are associated with different loan terms & syndicate characteristics whether the loan is issued during or before the crisis Bank loans are (not so) special... It depends ! 3 Christophe J, Godlewski, UHA & EM Strasbourg
Literature Bank loans and syndicated lending Banks screen & monitor borrowers => unique & valuable private information => lending decision = certification / signal Bank loan announcement = positive stock market reaction (abnormal return) [James (1987) Billett et al. (1995) ] But more recent evidence against specialness [Billet et al. 2006, Fields 2006 ] Syndicated loan = large loan granted by a pool of banks (arranger + participants) to a borrower under a single loan agreement Worldwide market = 4 trillion USD in 2011 Transactional & relationship features of bank lending Positive stock market reaction (Preece & Mullineaux 1996, Focarelli et al. 2008 ) Christophe J, Godlewski, UHA & EM Strasbourg 4
Literature (cont.) Bank lending during boom & bust Relaxed lending standards during boom (less IA) => Bank loan less special during boom (lower certification value) Insignificant AR during pre-crisis period Increased screening and monitoring (more IA) Wake-up call during bust (De Haas & van Horen 2010) => Bank loan more special during bust (wake up call) Significant and positive AR during crisis period However weak borrower need refinancing during crisis (Ivashina & Scharfstein 2010) + adverse shocks to lenders affect their borrowers => Bank loan less special during bust 5 Christophe J, Godlewski, UHA & EM Strasbourg
Empirical strategy Data Focus on French market (world s top deals, specific syndicate structure, French banks issues) Stock market, loan, syndicate & borrower variables from Bloomberg Filters related to data availability (stock returns) Full sample of 253 (unique) bank loan announcements from 01/2000 until 12/2009 (see Tab, 1 for descriptive statistics) Methodology Event study using market model to compute abnormal returns ????= ??? ? ?|?? ??, ???= ??+ ?????+ ??? Bank loan announcement date = event date (day 0) Estimation window = (-100,-10) 6 Christophe J, Godlewski, UHA & EM Strasbourg
Empirical strategy (cont.) 7 event windows [0,0]; [-1,1]; [-2,2] & asymmetric ones OLS regressions to estimate market model Summing daily AR over window => CAR => summing CAR over borrowers => CAAR Univariate analysis (1) CAAR = 0 ?; (2) differences in loan, syndicate, borrower variables for CAAR(+) & CAAR(-); (3) differences in loan, syndicate, borrower variables for boom & bust period; (4) = (2) + (3) Multivariate analysis ????= ? + ?? ?????? + ?? ???????? ?? ???????? + ? ???????? + ??? Crisis = 1 if loan announcement between 09/2007-12/2009 OLS regressions with robust s.e. ?????? 7 Christophe J, Godlewski, UHA & EM Strasbourg
Results (1/7) CAAR results (2000-2009 & by boom / bust period) Crisis (N.: 106) Pre-crisis (N.: 147) Event window % CAAR > 0 t-test for CAAR CAAR CAAR CAAR [0,0] -0,3001** 0,3872 -0,4291* -0,2066 0,75 [-1,1] [-2,2] -0,3121 -0,2622 0,4587 0,4812 -0,5909 -0,2228 -0,0561 -0,2906 1,07 -0,11 [-2,0] -0,2996 0,4662 -0,6025** 0,0118 1,74* [-1,0] -0,3068* 0,4812 -0,6458*** 0,0310 2,29** [0,1] [0,2] -0,3062 -0,2570 0,4098 0,4549 -0,3676 -0,0033 -0,3092 -0,5626 0,11 -0,89 8 Christophe J, Godlewski, UHA & EM Strasbourg
Results (2/7) (significant) Loan, syndicate and borrower characteristics by CAAR (2000-2009) CAAR [- 1,0] > 0 CAAR [- 1,0] < 0 Variable Mean Mean T or chi-2 test Facility (MLN USD) 900,521 459,911 2,57** Number of lenders % local lenders % local arrangers Total assets (MLN USD) 9,764 60,708 58,306 70 860 7,430 71,469 70,842 11 026 2,33** 3,05*** 3,31*** 2,09** Sales (MLN USD) 11 849 4 488 2,98*** 9 Christophe J, Godlewski, UHA & EM Strasbourg
Results (3/7) (significant) Loan and bank syndicate characteristics by boom & bust Crisis Pre-crisis Variable Mean Mean T or chi-2 test Maturity 4,844 1,535 -5,11*** Secured dummy 0,292 0,163 6,04** Covenants dummy 0,311 0,177 6,22** Number of lenders 6,811 9,830 3,27*** 10 Christophe J, Godlewski, UHA & EM Strasbourg
Results (4/7) (significant) Loan and bank syndicate variables by CAAR by boom & bust periods Crisis CAAR [-1,0] < 0 Pre-crisis CAAR [-1,0] < 0 CAAR [-1,0] > 0 CAAR [-1,0] > 0 T or chi-2 test -1,80* -2,09** T or chi-2 test -1,85* 1,49 Variable Mean Mean Mean Mean Facility Spread Number of tranches Number of lenders Number of arrangers % local lenders % local arrangers 1088,200 176,900 436,780 105,900 780,420 108,600 478,550 138,900 3,188 2,052 -1,96* 2,147 2,486 1,14 6,854 6,776 -0,07 11,627 7,958 -2,49** 6,425 6,569 0,13 7,917 5,814 -1,84* 63,579 73,868 1,85* 59,127 69,496 2,25** 60,056 72,078 2,03** 57,364 69,870 2,52** 11 Christophe J, Godlewski, UHA & EM Strasbourg
Results (5/7) (significant) Borrower variables by CAAR over boom & bust periods Crisis CAAR [-1,0] < 0 Pre-crisis CAAR [-1,0] < 0 CAAR [-1,0] > 0 CAAR [-1,0] > 0 T or chi-2 test T or chi-2 test Variable Mean Mean Mean Mean Total assets 122 950 8 298 -1,71* 38 738 13 227 -1,22 Sales 15 717 4 024 -2,25** 9 399 4 904 -1,88* Equity ratio 23,938 33,545 2,99*** 28,410 26,868 -0,28 12 Christophe J, Godlewski, UHA & EM Strasbourg
Results (6/7) (significant) Regressions of CAR on main loan, syndicate and borrower characteristics Variables X = loan & syndicate X = loan & syndicate & borrower Crisis -0,6759** (0,3073) -1,0108*** (0,3456) Crisis x log(Facility) -0,0330** (0,0154) Crisis x log(Lenders) -0,2760* (0,1450) Crisis x log(Sales) -0,1114*** (0,0420) Crisis x Equity ratio -3,1248*** (1,0638) 152 0,1464 2,8214 N R F-stat. 195 0,0959 1,8463 195 0,0943 1,8491 195 0,0899 1,8876 152 0,1372 2,4899 152 0,1257 2,4585 13 Christophe J, Godlewski, UHA & EM Strasbourg
Results (7/7) (significant) Financial constraints variables by CAAR over boom & bust periods Crisis CAAR (-1,0) < 0 Pre-crisis CAAR (-1,0) < 0 CAAR (-1,0) > 0 CAAR (-1,0) > 0 T or W. / K-W test T or W. / K-W test Variable Mean Mean Mean Mean Retained earnings Free cash flow Short term borrowings Long term borrowings Total lines of credit Total available lines of credit 776,106 -14 098,78 -0,97 1 693,01 1 267,56 -0,43 1 416,51 127,891 -1,21 216,056 358,286 0,32 16 057,01 533,339 -1,39 8 576,25 1 118,95 -1,43 28 733,18 2 851,61 -1,18 5 901,87 1 749,97 -1,68* -2,10** / 4,42** -3,38*** / 11,47*** 3 084,04 997,369 2 994,07 253,688 -2,09** / 4,38** 4 331,59 911,257 -0,72 / 0,52 1 555,67 469,572 14 Christophe J, Godlewski, UHA & EM Strasbourg
Discussion Are bank loans (still) special ? Significant & negative stock market reaction to bank loan announcements Mostly loans issued during crisis period No significant reaction during boom period Positive reaction for larger loans funded by smaller syndicates to large borrower Bust wake-up call : loans with larger maturities, collateral, covenants, by smaller syndicates However during crisis: positive reaction to larger loans a spreads, multiple tranches, less local lenders, large borrowers with lower equity ratio Investors (more) concerned about financial constraints Bank loans are (not so) special... It depends ! 15 Christophe J, Godlewski, UHA & EM Strasbourg
