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Does the type of debt matter? Stock market perception in Europe

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  • Fungáčová, Zuzana
  • Godlewski, Christophe J.
  • Weill, Laurent

Abstract

We study the effect of syndicated loan and bond announcements on the stock price of borrowers. No work since James (1987) on US data has compared the impact of both types of announcements on the same sample. Applying an event study methodology on a sample of companies from 17 Western European countries, we find that debt announcements tend to generate a positive stock market reaction. Our main conclusion is that loan issuance exerts a significantly stronger reaction than a bond issuance. This finding supports the hypothesis that loan issuance has a positive certification effect. The analysis of determinants of abnormal returns following debt announcements shows a positive impact for financial development and a negative effect for the Eurozone crisis.

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  • Fungáčová, Zuzana & Godlewski, Christophe J. & Weill, Laurent, 2020. "Does the type of debt matter? Stock market perception in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 247-256.
    • Handle: RePEc:eee:quaeco:v:75:y:2020:i:c:p:247-256
    DOI: 10.1016/j.qref.2019.04.009
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    Cited by:

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    3. Tampakoudis, Ioannis & Noulas, Athanasios & Kiosses, Nikolaos, 2022. "The market reaction to syndicated loan announcements before and during the COVID-19 pandemic and the role of corporate governance," Research in International Business and Finance, Elsevier, vol. 60(C).
    4. Paul‐Olivier Klein & Laurent Weill, 2018. "Bond offerings in China : The role of ownership," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 26(3), pages 363-399, July.
    5. Mariotto, Carlotta & Verdier, Marianne, 2015. "Innovation and competition in Internet and mobile banking: an industrial organization perspective," Research Discussion Papers 23/2015, Bank of Finland.
    6. repec:bof:bofrdp:urn:nbn:fi:bof-201512101465 is not listed on IDEAS
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    9. Marshall, Andrew & McCann, Laura & McColgan, Patrick, 2019. "The market reaction to debt announcements: UK evidence surrounding the global financial crisis," The British Accounting Review, Elsevier, vol. 51(1), pages 92-109.
    10. repec:bof:bofrdp:urn:nbn:fi:bof-201511251450 is not listed on IDEAS
    11. Klein, Paul-Olivier & Weill, Laurent, 2015. "Is it worth issuing bonds in China? Evidence from stock market reactions," BOFIT Discussion Papers 33/2015, Bank of Finland, Institute for Economies in Transition.
    12. repec:bof:bofrdp:urn:nbn:fi:bof-201512171488 is not listed on IDEAS
    13. Carlos Arango & Yassine Bouhdaoui & David Bounie & Martina Eschelbach & Lola Hernández, 2013. "Cash Management and Payment Choices: A Simulation Model with International Comparisons," Staff Working Papers 13-53, Bank of Canada.
    14. Eerola, Essi & Saarimaa, Tuukka, 2015. "Who Benefits from Public Housing?," Working Papers 68, VATT Institute for Economic Research.
    15. Kanwal Iqbal Khan & Faisal Qadeer & Mário Nuno Mata & Rui Miguel Dantas & João Xavier Rita & Jéssica Nunes Martins, 2021. "Debt Market Trends and Predictors of Specialization: An Analysis of Pakistani Corporate Sector," JRFM, MDPI, vol. 14(5), pages 1-16, May.
    16. repec:bof:bofitp:urn:nbn:fi:bof-201601071000 is not listed on IDEAS
    17. Paul-Olivier KLEIN, 2017. "Do Shareholders Value Bond Offerings? A Meta-Analysis," Working Papers of LaRGE Research Center 2017-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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