Differential Pricing of Components of Bank Loan Fair Values
Journal Article (Journal Article)
This paper examines the capital market pricing implications of nondiscretionary, discretionary, and noise components of loan fair values for a sample of commercial banks. We use a model to partition loan fair values into discretionary and nondiscretionary components using proxies for discretion and nondiscretion. The residual from the model captures the noise component. We hypothesize that the nondiscretionary component is priced on a dollar-for-dollar basis and the residual (noise) component is not priced. The pricing coefficient on the discretionary component is predicted to be positive (negative) depending on whether the motivation for discretion is signaling (opportunism). We find evidence consistent with the hypotheses, implying that the relevance and reliability of loan fair values differs across the three components. © 2003, SAGE Publications. All rights reserved.
Full Text
Duke Authors
Cited Authors
- Beaver, W; Venkatachalam, M
Published Date
- January 1, 2003
Published In
Volume / Issue
- 18 / 1
Start / End Page
- 41 - 68
International Standard Serial Number (ISSN)
- 0148-558X
Digital Object Identifier (DOI)
- 10.1177/0148558X0301800103
Citation Source
- Scopus