Bank loan announcements and borrower stock returns before and during the recent financial crisis

•Borrower excess returns around bank loan announcements decreased before the crisis.•We find that prior to August 2007 excess returns were close to zero.•Afterwards excess returns jump back up to around 200 basis points.•Certification by banks may have started to play a lesser role before the crisis.•During the crisis the banks’ role may have been revitalized.

The impact of U.S. bank loan announcements on the stock prices of the corporate borrowers has been decreasing during the two last decades with estimated two-day cumulative abnormal returns slipping from almost 200 basis points in the beginning of the 1980s to close to zero by the turn of the Century. We estimate excess returns before and after the onset of the most recent financial crisis. We find that while prior to August 2007 returns were indeed close to zero, afterwards returns jump back up to around 200 basis points. We surmise that in a booming credit market the certification of corporate borrowers by banks started to play a lesser role, while during the crisis the banks’ role was revitalized. Consistent with this interpretation we find that after August 2007 excess returns increase especially for loans with a longer maturity, and for smaller, levered, less profitable or lowly rated firms.