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The price behavior around initial loan announcements: Evidence from zero-leverage firms in the UK

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  • Zhang, Sijia
  • Gregoriou, Andros

Abstract

This paper analyses price effects of trades around the initial loan announcements for 96 zero-leverage firms listed on the FTSE 350 index over the time of period 2000–2015. Using a very large sample size of 28 million share purchases and 26 million share sales, we discover price continuations follow buys and reversals follow sales. We also observe that purchases have a greater impact on permanent price changes. Once price effects are estimated using quote returns to eliminate the bid-ask bias, the asymmetry in buyer and seller initiated trades is dramatically reduced. Our results suggest that the bid-ask bounce can explain asymmetry in the trading direction of zero-leverage firms when they encounter debt for the first time.

Suggested Citation

  • Zhang, Sijia & Gregoriou, Andros, 2019. "The price behavior around initial loan announcements: Evidence from zero-leverage firms in the UK," Research in International Business and Finance, Elsevier, vol. 50(C), pages 191-200.
    • Handle: RePEc:eee:riibaf:v:50:y:2019:i:c:p:191-200
    DOI: 10.1016/j.ribaf.2019.05.004
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    2. Zhang, Sijia & Gregoriou, Andros, 2021. "The impact of order flow on event study returns: New evidence from zero-leverage firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 627-634.
    3. Morais, Flávio & Serrasqueiro, Zélia & Ramalho, Joaquim J.S., 2020. "The zero-leverage phenomenon: A bivariate probit with partial observability approach," Research in International Business and Finance, Elsevier, vol. 53(C).

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    More about this item

    Keywords

    Zero-leverage firms; Price impact; Bid-ask bounce; Liquidity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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