The Impact of Bank Loan Announcements on Stock Liquidity

Pham, Thu Phuong; Singh, Harminder; Vu, Van Hoang

doi:10.1016/j.iref.2023.02.009

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Authors

Pham, Thu Phuong

Singh, Harminder

Vu, Van Hoang

Date

2023

Type

Journal Article

Metadata

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Citation

Pham, T.P. and Singh, H. and Vu, V.H. 2023. The Impact of Bank Loan Announcements on Stock Liquidity. International Review of Economics & Finance.

Source Title

International Review of Economics & Finance

DOI

10.1016/j.iref.2023.02.009

ISSN

1059-0560

Faculty

Faculty of Business and Law

School

School of Accounting, Economics and Finance

URI

http://hdl.handle.net/20.500.11937/90444

Collection

Curtin Research Publications

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 realized spreads of borrowers’ stocks fall after the announcements. The findings suggest these announcements send positive signals about borrowers to the market that increase 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 for loan renewals. Overall, our findings provide practical implications for firm managers in the financing decision-making process and market participants in trading strategy adjustment.