Skip to main content
SpringerLink
Log in

An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market

  • Original Article
  • Published:
Journal of Banking Regulation Aims and scope Submit manuscript

Abstract

This research extends the study of Boscaljon and Ho and test the effect of market response to bank loan announcement in the Hong Kong banking market after the 1997 Asian crisis. The study also investigates whether bank is still ‘special’ in the financial market by comparing the market response to bank loan announcement and non-bank loan announcement. Finally, the study examines how loan characteristics influence the market response to bank loan announcement. The main findings of our study are consistent with the previous results documented for the US, Canada and Hong Kong markets, and further confirm the ‘uniqueness’ of banks in the financial market. Moreover, we find that market response is significant positively related to borrower's debt ratio, and there is also a strong evidence of information leakage problem for non-bank loan announcements in the Hong Kong stock market.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1

Similar content being viewed by others

References

  • Boscaljon, B. and Ho, C.C. (2005) Information content of bank loan announcements to Asian corporations periods of economic uncertainty. Journal of Banking and Finance 29: 369–389.

    Article  Google Scholar 

  • Campbell, T. and Kracaw, W. (1980) Information production, market signalling, and the theory of intermediation. Journal of Finance 35: 863–882.

    Article  Google Scholar 

  • Diamond, D. (1984) Financial intermediation and delegated monitoring. Reviews of Economic Studies 51: 393–414.

    Article  Google Scholar 

  • Fama, E.F. (1985) What's different about banks. Journal of Monetary Economics 15: 29–39.

    Article  Google Scholar 

  • James, C. (1987) Some evidence on the uniqueness of bank loans: A comparison of bank borrowing, private placements, and public debt offerings. Journal of Financial Economics 19: 217–235.

    Article  Google Scholar 

  • Lummer, S. and McConnell, J. (1989) Further evidence on the bank lending process and the capital-market response to bank loan agreements. Journal of Financial Economics 25: 99–122.

    Article  Google Scholar 

  • Billett, M., Flannery, M. and Garfinkel, J. (1995) The effect of lender identity on a borrowing firm's equity return. The Journal of Finance 50 (2): 699–718.

    Article  Google Scholar 

  • Wansley, J.W., Elayan, F.A. and Collins, M.C. (1992) Investment opportunities and firm quality: An empirical investigation of the information in bank lines of credit. Working paper, University of Tennessee, Chattanooga, TN.

  • Aintablian, S. and Roberts, G.S. (2000) A note on market response to corporate loan announcements in Canada. Journal of Banking and Finance 24: 381–393.

    Article  Google Scholar 

  • James, C. and Smith, D.C. (2000) Are banks still special? New evidence on their role in the corporate capital-raising process. Journal of Applied Corporate Finance 13 (1): 52–63.

    Article  Google Scholar 

  • Billett, M., Flannery, M. and Garfinkel, J. (2006) Are bank loans special? Evidence on the post-announcement performance of bank borrowers. Journal of Financial and Quantitative Analysis 41 (4): 733–751.

    Article  Google Scholar 

  • Fields, L.P., Fraser, D.R., Berry, T.L. and Byers, S. (2006) Do bank loan relationships still matter? Journal of Money, Credit & Banking 38 (5): 1195–1209.

    Article  Google Scholar 

  • Preece, D. and Mullineaux, D.J. (1996) Monitoring, loan renegotiability, and firm value: The role of lending syndicates. Journal of Banking and Finance 20: 577–593.

    Article  Google Scholar 

  • Slovin, M.B., Johnson, S.A. and Glascock, J.L. (1992) Firm size and the information content of bank loan announcements. Journal of Banking and Finance 16: 1057–1071.

    Article  Google Scholar 

  • Armitage, S. (1995) Banks, information about borrowers: the stock market response to syndicated loan announcements in the UK. Applied Financial Economics 5 (6): 449–459.

    Article  Google Scholar 

  • Leland, H.E. and Pyle, D.H. (1977) Informational asymmetries, financial structure, and financial intermediation. The Journal of Finance 32 (2): 371–387.

    Article  Google Scholar 

  • Mikkelson, W. and Partch, M. (1986) Valuation effects of security offerings and the issuance process. Journal of Financial Economics (15): 31–60.

  • Brumm, J.M. (1996) The Effects of Analyst Following on Market Response to Bank Loan Announcements. PhD thesis, Department of accounting of Louisiana State University.

    Google Scholar 

  • James, C. and Wier, P. (1999) Are bank loans different? Some evidence from the stock market. In: D.H. Chew (ed.) The New Corporate Finance: Where the Theory Meets Practice, 2nd edn. New York: Irwin McGraw-Hill.

    Google Scholar 

  • Chemmanur, T.J. and Fulghieri, P. (1994) Reputation, renegotiation, and the choice between bank loans and publicly traded debt. The Review of Financial Studies 7 (3): 475–506.

    Article  Google Scholar 

  • Best, R. and Zhang, H. (1993) Alternative information sources and the information content of bank loans. The Journal of Finance 4: 1507–1523.

    Article  Google Scholar 

  • Dahiya, S., Puri, M. and Saunders, A. (2003) Bank borrowers and loan sales: New evidence on the uniqueness of bank loans. Journal of Business 76 (4): 563–582.

    Article  Google Scholar 

  • Petersen, M. and Rajan, R. (2002) Does distance still matter: The information revolution in small business lending. Journal of Finance 57: 2533–2570.

    Article  Google Scholar 

  • Bailey, W., Huang, W. and Yang, Z. (2011) Bank loans with Chinese characteristics: Inside debt, firm quality, and market response. forthcoming in Journal of Financial and Quantitative Analysis.

  • Wong, M.S., Cheung, Y.L. and Wu, L. (2000) Insider trading in the Hong Kong stock market. Asia-Pacific Financial Markets 7: 275–288.

    Article  Google Scholar 

  • Wong, E. (2002) Investigation of Market Efficiency: An Event Study of Insider Trading in the Stock Exchange of Hong Kong. Honors thesis, Stanford University.

    Google Scholar 

  • Cheuk, M.Y., Fan, D.K. and So, R.W. (2005) Insider trading in Hong Kong: Some stylized facts. Pacific-Basin Finance Journal 14: 73–90.

    Article  Google Scholar 

  • Bhushan, R. (1989) Firm characteristics and analyst following. Journal of Accounting and Economics 11: 255–274.

    Article  Google Scholar 

  • Ongena, S. and Roscovan, V. (2009) Bank Loan Announcements and Borrower Stock Returns: Does Bank Origin Matter? ECB Working Paper. No. 1023.

  • Fama, E.F. (1968) Risk, return, and equilibrium: Some clarifying comments. Journal of Finance 23 (1): 29–40.

    Article  Google Scholar 

  • Beja, A. (1972) On systematic and unsystematic components of financial risk. Journal of Finance 27 (1): 37–45.

    Article  Google Scholar 

  • Fama, E.F. (1973) A note on the market model and the two-parameter model. Journal of Finance 28 (5): 1181–1185.

    Article  Google Scholar 

  • Rajan, R.G. (1992) Insiders and outsiders: The choice between informed and arm's-length debt. The Journal of Finance 47 (4): 1367–1400.

    Article  Google Scholar 

  • Houston, J. and James, C. (1996) Bank information monopolies and the mix of private and public debt claims. Journal of Finance 51: 1863–1889.

    Article  Google Scholar 

  • Le, K.-S. (2007) Syndicated loans in the United States (1995–2000): Announcement effects, long-term performance and capital structure issues from borrower perspective. PhD thesis, Murdoch University, Australia.

  • Ongena, S., Smith, D. and Michalsen, D. (1999) Distressed Relationships: Lessons from the Norwegian Banking Crisis (1988–1991). Working Paper on Social Sciences Research Network.

  • Andre, P., Mathieu, R. and Zhang, P. (2001) A note on: Capital adequacy and the information content of term loans and lines of credit. Journal of Banking and Finance 25: 431–444.

    Article  Google Scholar 

  • Bhandari, L.C. (1988) Debt/equity ratio and expected common stock returns: Empirical evidence. Journal of Finance 43 (2): 507–528.

    Article  Google Scholar 

  • Cukur, S., Eryigit, M. and Duran, S. (2008) The effect of syndication and securitization loan agreements on the value of borrowers’ share prices in an emerging market. International Research Journal of Finance and Economics 20: 188–196.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Accounting, Economics and Finance, Faculty of Commerce, Lincoln University, PO Box 84, Christchurch, 7647, New Zealand

    Christopher Gan

Authors
  1. Carol Chen Qing
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Christopher Gan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Zhaohua Li
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Cite this article

Qing, C., Gan, C. & Li, Z. An empirical analysis of the effects of market response to bank loan announcements in Hong Kong stock market. J Bank Regul 12, 210–226 (2011). https://doi.org/10.1057/jbr.2011.6

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jbr.2011.6

Keywords

Search

Navigation