FIRM SIZE AND THE INFORMATION-CONTENT OF BANK LOAN ANNOUNCEMENTS

We examine share price responses to announcements of bank credit agreements for exchange listed and NASDAQ firms and test whether there are systematic differences between large and small capitalization firms. For small firms both renewals and initiations of loan agreements generate significantly positive share price effects. In contrast, for large firms there is little evidence that bank credit announcements convey information to the capital market. Our results are consistent with arguments of Fama and Diamond that it is primarily small, less prestigious firms that receive benefits from screening and monitoring services associated with bank loans.