Industry contagion in loan spreads |
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| Authors: | Michael G HertzelMicah S Officer |
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| Institution: | a W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA
b Loyola Marymount University, College of Business Administration, Hilton Center for Business, 1 LMU Drive, Los Angeles, CA 90045-2659, USA |
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| Abstract: | Spreads on new and renegotiated corporate loans are significantly higher when the loan originates (or is renegotiated) in the two years surrounding bankruptcy filings by industry rivals. This industry-specific contagion is particularly severe in the middle of industry bankruptcy waves. Furthermore, this contagion in loan spreads is mitigated in concentrated industries, consistent with the hypothesis and evidence in Lang and Stulz (1992) that bankruptcy filings in concentrated industries can have positive consequences for rivals (increased market share and/or power). There is also some evidence that contagion affects non-spread terms in loan contracts. |
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| Keywords: | G30 G33 |
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