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The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt

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  • Ilia D. Dichev
  • Joseph D. Piotroski

Abstract

This study uses a balance sheet‐based method to identify both public and private debt issues. This feature is important because there have been no studies of the information content of private debt issues, while private debt is substantially more prevalent than public debt. We find no abnormal returns following straight debt issues. However, convertible debt issuers under‐perform the market on the order of 50 to 70 percent in the following five years. In pursuit of explanations, we find that convertible debt issues signal a deterioration of future profitability, which accounts for at least part of the stock price underperformance.

Suggested Citation

  • Ilia D. Dichev & Joseph D. Piotroski, 1999. "The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(9‐10), pages 1103-1132, November.
    • Handle: RePEc:bla:jbfnac:v:26:y:1999:i:9-10:p:1103-1132
    DOI: 10.1111/1468-5957.00288
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    Citations

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    Cited by:

    1. Jan L. Williams & Alex P. Tang, 2009. "Private placements of convertible securities: stock returns, operating performance and abnormal accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 873-899, December.
    2. Patrick Christian Feihle & Jochen Lawrenz, 2017. "The Issuance of German SME Bonds and its Impact on Operating Performance," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 18(3), pages 227-259, August.
    3. Gao, Pengjie & Lou, Dong, 2013. "Cross-market timing in security issuance," LSE Research Online Documents on Economics 119036, London School of Economics and Political Science, LSE Library.
    4. Ales Berk, 2006. "Determinants of Leverage in Slovenian Blue-Chip Firms and Stock Performance Following Substantial Debt Increases," Post-Communist Economies, Taylor & Francis Journals, vol. 18(4), pages 479-494.
    5. Uday Chandra & Nandkumar (Nandu) Nayar, 2008. "The Information Content of Private Debt Placements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9‐10), pages 1164-1195, November.
    6. Ihsan Ullah & Attaullah Shah, 2014. "The Effect of Capital Structure on Abnormal Stock Returns: Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 6(1), pages 1-18, April.
    7. Butler, Alexander W. & Cornaggia, Jess & Grullon, Gustavo & Weston, James P., 2011. "Corporate financing decisions, managerial market timing, and real investment," Journal of Financial Economics, Elsevier, vol. 101(3), pages 666-683, September.
    8. Abhyankar, Abhay & Ho, Keng-Yu, 2006. "Long-run abnormal performance following convertible preference share and convertible bond issues: New evidence from the United Kingdom," International Review of Economics & Finance, Elsevier, vol. 15(1), pages 97-119.
    9. Uday Chandra & Nandkumar (Nandu) Nayar, 2008. "The Information Content of Private Debt Placements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1164-1195.
    10. 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.
    11. Bradley, Daniel & Pantzalis, Christos & Yuan, Xiaojing, 2016. "Policy risk, corporate political strategies, and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 254-275.
    12. Edward Lee & Konstantinos Stathopoulos & Mark Hon, 2006. "Investigating the return predictability of changes in corporate borrowing," Accounting and Business Research, Taylor & Francis Journals, vol. 36(2), pages 93-107.
    13. Cai, Kelly Nianyun & Zhu, Hui, 2016. "The market reaction to Yankee and Rule 144A bond offerings," Journal of Multinational Financial Management, Elsevier, vol. 34(C), pages 1-17.
    14. Jamal A. Al‐Khasawneh & Paul Dion & Naceur Essaddam & Tashfeen Hussain, 2023. "Is the cost of equity a mere function of leverage? The case of bond IPOs," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 58-78, January.
    15. Devrim Yaman, 2011. "Long-Run Operating Performance Of Preferred Stock Issuers," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(2), pages 61-73.

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