Journal of Banking and Finance 16 (1992) 1057-1071. North-Holland Firm size and the information content of bank loan announcements Myron B. Slovin Louisiana State University, Baton Rouge, L.A 70803, USA Shane A. Johnson Bowling Green State University, Bowling Green, OH 43403, USA John L. Glascock Louisiana State University. Baton Rouge, L.A 70803, USA Received August 1991, final version received December 1991 We examine share price responses to announcements of bank credit agreements for exchange listed and NASDAQ lirms 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. 1. Introduction In this paper we test whether share price responses to loan announcements differ systematically between large and small capitalization firms. Since a broader and richer public information set is available for larger firms compared to smaller firms, fewer screening and monitoring services are entailed in bank lending to such firms so client firm share price response to bank loan announcements should be an inverse function of firm size. We draw upon work in the banking and accounting literatures about the value of external monitoring and the impact of firm size on share price reactions to corporate announcements. We examine share price responses to bank loan announcements for Correspondence to: Prof. Myron B. Slovin, Department of Finance, College of Business Administration, Louisiana State University, Baton Rouge, LA 70803, USA. Telephone (504) 388- 6260; fax (504) 388-6366. 03784266/92/f05.00 0 l992-Elsevier Science Publishers B.V. All rights reserved