The impact of bank loan announcements on stock liquidity

Pham, Thu Phuong and Singh, Harminder and Vu, Van Hoang (2023): The impact of bank loan announcements on stock liquidity. Forthcoming in: International Review of Economics & Finance

Abstract

We examine the impact of bank loan announcements on stock liquidity. Using a comprehensive loan announcement sample over 14 years in Australia, we find that effective spreads and realised spreads of borrowers' stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increases liquidity provision, and reduce transaction costs, leading to improved liquidity for borrowers’ stocks. This liquidity improvement is more pronounced following announcements of new loans than loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Loans announcements; Stock liquidity; Transaction costs, Corporate decisions
• Subjects: G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

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