Do Bank Loan Relationships Still Matter?

James (1987) and Lummer and McConnell (1989) find that during the 1970s and 1980s the market responded positively to announcements of bank lending agreements. However, many of the advantages associated with bank lending relationships have largely disappeared since the 1980s due to financial system changes and greater availability of and less costly financial information. We find that bank loan announcements produced positive abnormal returns in the 1980s, but by the latter part of our sample period those announcement returns disappear entirely. We do find that bank loan relationships may still be valuable to smaller, poorer performing firms or during periods of high credit risk spreads.