Recent empirical researches not only documented the disappearance of specialty in bank loan, but also pointed out that borrowing firms become suffer from poor long-run stock returns following bank loan announcement, which is not different from other types of financing. Nonetheless, it is believed that high reputation banks may contain more efficient monitoring on borrowers, and thus it may mitigate negative long-run stock abnormal return. Consequently, this paper assembles 1482 bank loan announcements from 1997 to 2003 to test whether obtaining loan from high reputation banks mitigates the negative magnitude of long run abnormal return on borrowing firms’ stock. Bank’s total deposit, bank capital ratio and bank loan loss ratio are employed as three proxies of bank reputation. By using Buy-and-Hold abnormal return, the finding reinforces the previous literature that borrowing firms suffer from stock underperformance three year following loan announcement. More importantly, this paper finds that borrowing from bank with higher capital ratio and lower loan loss ratio could alleviate the magnitude of borrowing firms’ long-run stock underperformance. However, lending bank’s total deposit becomes no significant relationship with long-run stock abnormal return of borrowers.

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