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Wealth Effects of Corporate Debt Issues: The Impact of Issuer Motivations

Author

Listed:
  • Aigbe Akhigbe
  • John C. Easterwood
  • R. Richardson Pettit

Abstract

This study documents a link between the market's reaction to a new issue announcement and the issuer's motivation for both debt and equity issues. Negative and significant price reactions occur for outstanding debt and equity when the issuer faces an unexpected cash flow shortfall. Insignificant reactions accompany unexpected increases in capital expenditures or leverage or an expected debt refinancing.

Suggested Citation

  • Aigbe Akhigbe & John C. Easterwood & R. Richardson Pettit, 1997. "Wealth Effects of Corporate Debt Issues: The Impact of Issuer Motivations," Financial Management, Financial Management Association, vol. 26(1), Spring.
    • Handle: RePEc:fma:fmanag:akhigbe97
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    Cited by:

    1. Maul, D. & Schiereck, D., 2017. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Raymond M Brooks & Ajay Patel, 2000. "Information conveyed by seasoned security offerings: evidence from components of the bid–ask spread," Review of Financial Economics, John Wiley & Sons, vol. 9(2), pages 83-99, December.
    3. Luc Renneboog & Peter G. Szilagyi, 2008. "Corporate Restructuring and Bondholder Wealth," European Financial Management, European Financial Management Association, vol. 14(4), pages 792-819, September.
    4. Chen, Fan, 2016. "The wealth effects of dividend announcements on bondholders: New evidence from the over-the-counter market," Journal of Economics and Business, Elsevier, vol. 86(C), pages 52-75.
    5. Javier Sánchez-Vidal & Juan Martín-Ugedo, 2005. "Financing Preferences of Spanish Firms: Evidence on the Pecking Order Theory," Review of Quantitative Finance and Accounting, Springer, vol. 25(4), pages 341-355, December.
    6. Massa, Massimo & Manconi, Alberto & Altieri, Michela, 2017. "Corporate Bond Guarantees and The Value of Financial Flexibility," CEPR Discussion Papers 11992, C.E.P.R. Discussion Papers.
    7. Brooks, Raymond M. & Patel, Ajay, 2000. "Information conveyed by seasoned security offerings: evidence from components of the bid-ask spread," Review of Financial Economics, Elsevier, vol. 9(2), pages 83-99, December.
    8. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.
    9. Farrell, Kathleen A. & Whidbee, David A., 2002. "Monitoring by the financial press and forced CEO turnover," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2249-2276.

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