Some consequences of banks' LDC loans: A note

The realized returns on LDC loans made prior to 1980 and hypothetically sold at (below par) secondary market prices in either 1986, when a secondary market first began, or, say, in 1989 are moderately positive. The realized risk-adjusted returns to investors on a portfolio of large LDC lending bank stocks are unmistakenly lower than the return on a broad market index, though they are not significantly so. Similarly, although the difference is not statistically significant, the average realized return on LDC lending banks' stocks is well below that of a portfolio of non-LDC lending banks. The article concludes that while shareholders suffered economic losses as a result of LDC lending activity, these losses were not quantitatively large.