A garfinkel the effect of lender identity on a

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Unformatted text preview: pp. 217–35; M. T. Billett, M. J. Flannery, and J. A. Garfinkel, “The Effect of Lender Identity on a Borrowing Firm’s Equity Return,” Journal of Finance 50 (1995), pp. 699–718; W. A. Kracaw and M. Zenner, “The Wealth Effects of Bank Financing Announcements in Highly Leveraged Transactions,” Journal of Finance 57 (1996), pp. 1931–46; A. W. Boot, “Relationship Banking: What Do We Know?” Journal of Financial Intermediation 9 (2000), pp. 7–25; and S. Dahiya, M. Puri, and A. Saunders, “Bank Borrowers and Loan Sales: New Evidence on the Uniqueness of Bank Loans,” Journal of Business, forthcoming. 4 For a review of such studies, see E. J. Elton and M. J. Gruber, Modern Portfolio Theory and Investment Analysis, 6th ed. (New York: John Wiley & Sons, 1998), chapter 2. sau86198_ch01.qxd 8 Part One 4/21/02 8:52 PM Page 8 Introduction really going on here is that FIs exploit the law of large numbers in their investments, whereas due to their small size, many household savers are constrained to holding relatively undiversified portfolios. This risk diversification...
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