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The Information Content Of Calls Of Debt: Evidence From Long-Run Stock Returns


  • John Affleck-Graves
  • Robert E. Miller


We examine the long-run performance of the common stock of firms following calls of both straight and convertible debt from 1945 to 1995. Using a sample of 718 calls of straight debt, we find an average abnormal return in the five years following the call of between 0.16% and 0.34% per month, which compounds to an economically and statistically significant 11% to 22% over the five-year period. This evidence of overperformance following calls shows a distinct symmetry between the straight debt and equity markets. Issues of debt and equity are both followed by long-term underperformance, whereas stock repurchases and debt calls are both followed by long-run overperformance. For our sample of 713 calls of convertible debt, we find little systematic evidence of abnormal performance following the call. Some researchers suggest that calls of convertible debt provide negative signals to the market. Our results provide no support for this claim. In contrast, our evidence of marginal positive long-run returns provides weak support for the model that calls of convertible debt signal the realization of profitable investment options, and for the price pressure hypothesis. 2003 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • John Affleck-Graves & Robert E. Miller, 2003. "The Information Content Of Calls Of Debt: Evidence From Long-Run Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(4), pages 421-447.
  • Handle: RePEc:bla:jfnres:v:26:y:2003:i:4:p:421-447

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    References listed on IDEAS

    1. Louis H. Ederington & Jess B. Yawitz & Brian E. Roberts, 1987. "The Informational Content Of Bond Ratings," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 10(3), pages 211-226, September.
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    7. Szewczyk, Samuel H, 1992. " The Intra-industry Transfer of Information Inferred from Announcements of Corporate Security Offerings," Journal of Finance, American Finance Association, vol. 47(5), pages 1935-1945, December.
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    Cited by:

    1. Sullivan, Michael & Zhang, Andrew (Jianzhong), 2011. "Are investment and financing anomalies two sides of the same coin?," Journal of Empirical Finance, Elsevier, vol. 18(4), pages 616-633, September.
    2. Richardson, Scott & Tuna, Irem & Wysocki, Peter, 2010. "Accounting anomalies and fundamental analysis: A review of recent research advances," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 410-454, December.
    3. 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.
    4. James Cordeiro & Manish Tewari, 2015. "Firm Characteristics, Industry Context, and Investor Reactions to Environmental CSR: A Stakeholder Theory Approach," Journal of Business Ethics, Springer, vol. 130(4), pages 833-849, September.
    5. Lin, Ji-Chai & Wu, YiLin, 2013. "SEO timing and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 95-118.
    6. Gengnan Chiang, 2016. "Exploring the transitional behavior among value and growth stocks," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 543-563, October.

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