Local bankruptcy and geographic contagion in the bank loan market


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


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DOI: https://doi.org/10.2139/ssrn.2637026
URL: https://madoc.bib.uni-mannheim.de/42184
URN: urn:nbn:de:bsz:180-madoc-421842
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: SSRN Working Paper Series
Place of publication: Rochester, NY
Publishing house: SSRN
Edition: Revised Oct. 2019
Publication language: English
Institution: Business School > ABWL u. Corporate Governance (Niessen-Ruenzi 2012-)
License: CC BY 4.0
Subject: 330 Economics
Keywords (English): Corporate bankruptcy , geographic contagion , bank loans
Abstract: This paper examines whether corporate bankruptcies influence the bank loan characteristics of geographically proximate firms. We find that, controlling for industry contagion and local economic conditions, firms headquartered near a bankruptcy event experience a 7 basis point increase in loan spreads over the subsequent year, even when the credit default risks of local firms do not increase. There is also an increase in the proportion of secured loans among non-filing local firms. Local bankruptcy has a stronger impact among lenders with geographically concentrated loan portfolios, but even lenders with low exposure to the local economy increase their spreads. The adverse effects of bankruptcy weaken as borrowers' distance to bankrupt firms increases. Collectively, these results suggest that lenders are sensitive to local bankruptcies and induce geographic contagion in the bank loan market.
Additional information: Online-Ressource

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Addoum, Jawad M. ; Kumar, Alok ; Le, Nhan ; Niessen-Ruenzi, Alexandra ORCID: 0000-0002-9493-8280 (2015) Local bankruptcy and geographic contagion in the bank loan market. Open Access SSRN Working Paper Series Rochester, NY [Working paper]
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