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The Market Reaction To Straight Debt Issues: The Effects Of Free Cash Flow

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  • Shawn D. Howton
  • Shelly W. Howton
  • Steven B. Perfect

Abstract

In this paper we measure the market reaction to 937 straight debt issues between 1983 and 1993. We find a negative and significant market reaction to a straight debt announcement. In addition, we find that the market reaction to a straight debt issue is directly related to the issuing firm's level of existing cash and inversely related to the issuing firm's investment opportunities.

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  • Shawn D. Howton & Shelly W. Howton & Steven B. Perfect, 1998. "The Market Reaction To Straight Debt Issues: The Effects Of Free Cash Flow," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(2), pages 219-228, June.
    • Handle: RePEc:bla:jfnres:v:21:y:1998:i:2:p:219-228
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    File URL: http://hdl.handle.net/10.1111/j.1475-6803.1998.tb00681.x
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    References listed on IDEAS

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    4. Babl, Christian & Fausel, Andreas & Kuhlman, Leonard & Schiereck, Dirk, 2014. "Werteffekte auf Anleiheemissionen: Eine Note für deutsche Emittenten," Die Unternehmung - Swiss Journal of Business Research and Practice, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 68(1), pages 8-22.
    5. Ghadeer Khartabiel & Ahmad Abu-Alkheil & Tunku Salha Tunku Ahmad & Walayet Khan, 2020. "Shari’ah-compliant Sukuk versus conventional bond announcements: is there a wealth effect?," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 1059-1073, April.
    6. Yushu Zhu, 2017. "Call it good, bad or no news? The valuation effect of debt issues," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1203-1229, December.
    7. Shao-Chi Chang & Sheng-Syan Chen & Ailing Hsing & Chia Huang, 2007. "Investment opportunities, free cash flow, and stock valuation effects of secured debt offerings," Review of Quantitative Finance and Accounting, Springer, vol. 28(2), pages 123-145, February.
    8. Ling Chu & Robert Mathieu & Chima Mbagwu, 2009. "The Impact of Corporate Governance and Audit Quality on the Cost of Private Loans," Accounting Perspectives, John Wiley & Sons, vol. 8(4), pages 277-304, November.
    9. Greg Roth & Cynthia G. McDonald, 1999. "Shareholder-Management Conflict And Event Risk Covenants," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 207-225, June.
    10. Davydov, Denis & Nikkinen, Jussi & Vähämaa, Sami, 2014. "Does the decision to issue public debt affect firm valuation? Russian evidence," Emerging Markets Review, Elsevier, vol. 20(C), pages 136-151.
    11. Yusnidah Ibrahim & Md Mohan Uddin & Kamarun Nisham Taufil Mohd & Mohd Sobri Minai, 2013. "Agency Costs and the Long-Run Performance of Debt Issuers," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 9(1), pages 67-87.
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