Bank Debt versus Bond Debt: Evidence from Secondary Market Prices |
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| Authors: | EDWARD I ALTMAN AMAR GANDE ANTHONY SAUNDERS |
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| Institution: | 1. Edward I. Altman is the Max L. Heine Professor of Finance, Department of Finance, Stern School of Business, New York University (E‐mail: ealtman@stern.nyu.edu).;2. Amar Gande is an Assistant Professor of Finance, Finance Department, Edwin L. Cox School of Business, Southern Methodist University (E‐mail: agande@cox.smu.edu).;3. Anthony Saunders is John M. Schiff Professor of Finance, Department of Finance, Stern School of Business, New York University (E‐mail: asaunder@stern.nyu.edu). |
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| Abstract: | This paper uses a new data set of daily secondary market prices of loans to analyze the specialness of banks as monitors. Consistent with a monitoring advantage of loans over bonds, we find the secondary loan market to be informationally more efficient than the secondary bond market prior to a loan default. Specifically, we find that secondary market loan returns Granger cause secondary market bond returns prior to a loan default. In contrast, secondary market bond returns do not Granger cause secondary market loan returns prior to a loan default. |
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| Keywords: | G14 G21 G22 G23 G24 bonds default loans monitoring |
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