The wealth effects of bank financing announcements in highly leveraged transactions

William Kracaw, Marc Zenner

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

We analyze the effect of financing announcements of highly leveraged transactions (HLTs) on the stock prices of the banks that lead HLT-lending syndicates. For our sample of 41 HLTs, we document that the first HLT and bank financing announcements result in positive wealth effects for the lending banks. We also find that these wealth effects are lower in 1985, for smaller HLTs, and for banks with a high loan loss reserve to total asset ratio. Finally, we report that Leveraged Buyout (LBO) targets gain about 2 percent, whereas leveraged recap targets lose about 2 percent, when the first bank financing agreement is announced.

Original languageEnglish (US)
Pages (from-to)1931-1946
Number of pages16
JournalJournal of Finance
Volume51
Issue number5
DOIs
StatePublished - Dec 1996

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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