We examine the value of bank durability to borrowing firms. The analysis is based on theoretical models of the asset services view of intermediation which imply that private information and associated relationship-specific activities are intrinsic to bank lending. We analyze share price effects on firms with lending relationships with Continental Illinois Bank during its de facto failure and subsequent FDIC rescue. We find the bank's impending insolvency had negative effects and the FDIC rescue positive effects on client firm share prices. We conclude that borrowers incur significant costs in response to unanticipated reductions in bank durability and thus are bank stakeholders.WE ANALYZE THE VALUE of bank durability to borrowing firms within the context of the asset services view of intermediation and contracting theory. We examine excess returns for firms with publicly documented lending relationships with the Continental Illinois Bank during the period of its de facto failure and rescue by the FDIC in 1984.1 At that time, Continental Illinois was the seventh largest domestic bank holding company and had a large corporate client base. This was the last government rescue of a major bank prior to the "too big to fail" doctrine, initiated several months afterwards. We find client firm value is correlated with unexpected changes in bank durability, indicating that borrowers have a valuable stake in lending relationships.The effects of bank failure on client firms are related to the extent to which borrowers obtain relationship-based cost advantages from bank lending. Financial market efficiency implies that share prices will capitalize any losses borrowers incur as a result of bank failure. We find client firms of Continental Illinois incur average excess returns of -4.2% during the bank's impending insolvency. In response to the government rescue announcement, which revived the bank's durability, client firms gain 2.0% on average. These effects * The authors are from, respectively, University. We acknowledge valuable suggestions from an anonymous referee, an anonymous associate editor, and Ren6 Stulz (the editor).1 Throughout the paper we use the terminology Continental Illinois Bank or Continental Illinois. The official name of the parent bank holding company at that time was Continental Illinois Corporation and its banking subsidiary was Continental Illinois National Bank and Trust Company of Chicago. 247 248The Journal of Finance are significant only for firms for which Continental Illinois Bank served as direct lender or as manager of a syndicated loan. Cross-sectional regressions indicate valuation effects are significantly magnified by the extent of client firm leverage or size of credit facility, but are mitigated for firms with publicly documented, contemporaneous lending relations with other banks, separate from those with Continental Illinois. Share price effects in response to the rescue are more favorable for firms with no publicly traded debt.We conclude that bank financial distress harms client firms...

We examine the value of bank durability to borrowing firms. The analysis is based on theoretical models of the asset services view of intermediation which imply that private information and associated relationship‐specific activities are intrinsic to bank lending. We analyze share price effects on firms with lending relationships with Continental Illinois Bank during its de facto failure and subsequent FDIC rescue. We find the bank's impending insolvency had negative effects and the FDIC rescue positive effects on client firm share prices. We conclude that borrowers incur significant costs in response to unanticipated reductions in bank durability and thus are bank stakeholders.

In this paper, we examine the market valuation effects of corporate sale‐and‐leasebacks. Specifically, we test whether such transactions offer a net benefit to lessees or lessors by evaluating the impact on share prices from announcements of sale‐and‐leasebacks of major corporate assets. Our evidence indicates that the announcements are associated with positive abnormal returns to lessees. We conclude that this positive market reaction results from an overall reduction in the present value of expected taxes occasioned by the transactions. Our evidence also suggests that the gains from sale‐and‐leasebacks accrue solely to lessee firms.

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We analyze intercorporate asset sales where equity is the means of payment, and compare the results to cash asset sales. Equity deals are value-enhancing for both buyers, 10%, and sellers, 3%, while cash sales generate seller returns of 1.9% and buyer returns that are not significant. Combined wealth gains are large for equity deals, but modest for cash deals. Equity-based asset sales are not a precursor to consolidations between buyers and sellers, and do not affect buyer openness to the takeover market. We conclude that the use of buyer equity conveys favorable information about the value of assets and buyers. Copyright 2005 by The American Finance Association.

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