The determinants of bank loan recovery rates |
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Authors: | Hinh D. Khieu Donald J. Mullineaux Ha-Chin Yi |
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Affiliation: | 1. College of Business, University of Southern Indiana, Evansville, IN 47725, United States;2. Gatton College of Business, University of Kentucky, Lexington, KY 40506, United States;3. McCoy College of Business Administration, Texas State University-San Marcos, San Marcos, TX 78666, United States |
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Abstract: | Using Moody’s Ultimate Recovery Database, we estimate a model for bank loan recoveries using variables reflecting loan and borrower characteristics, industry and macroeconomic conditions, and several recovery process variables. We find that loan characteristics are more significant determinants of recovery rates than are borrower characteristics prior to default. Industry and macroeconomic conditions are relevant, as are prepackaged bankruptcy arrangements. We examine whether a commonly used proxy for recovery rates, the 30-day post-default trading price of the loan, represents an efficient estimate of actual recoveries and find that such a proxy is biased and inefficient. |
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Keywords: | G21 G28 |
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