IDEAS home Printed from https://ideas.repec.org/a/eme/jespps/jes-05-2018-0190.html
   My bibliography  Save this article

Initial bank loans, zero-leverage firms and stock market liquidity

Author

Listed:
  • Sijia Zhang
  • Andros Gregoriou

Abstract

Purpose - The purpose of this paper is to examine stock market reactions and liquidity effects following the first bank loan announcement of zero-leverage firms. Design/methodology/approach - The authors use an event studies methodology in both a univariate and multivariate framework. The authors also use regression analysis. Findings - Using a sample of 96 zero-leverage firms listed on the FTSE 350 index over the time period of 2000–2015, the authors find evidence of a significant and permanent stock price increase as a result of the initial debt announcement. The loan announcement results in a sustained increase in trading volume and liquidity. This improvement continues to persist once the authors control for stock price and trading volume effects in both the short and long run. Furthermore, the authors examine the spread decomposition around the same period, and discover the adverse selection of the bid–ask spread is significantly related to the initial bank loan announcement. Research limitations/implications - The results can be attributed to the information cost/liquidity hypothesis, suggesting that investors demand a lower premium for trading stocks with more available information. Originality/value - This is the first paper to look at multiple industries, more than one loan and information asymmetry effects.

Suggested Citation

  • Sijia Zhang & Andros Gregoriou, 2019. "Initial bank loans, zero-leverage firms and stock market liquidity," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(5), pages 1028-1051, August.
    • Handle: RePEc:eme:jespps:jes-05-2018-0190
    DOI: 10.1108/JES-05-2018-0190
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-05-2018-0190/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-05-2018-0190/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/JES-05-2018-0190?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Sijia & Gregoriou, Andros, 2020. "Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the UK stock market," Journal of Business Research, Elsevier, vol. 116(C), pages 13-26.
    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. Tabash, Mosab I. & Farooq, Umar & Ashfaq, Khurram & Tiwari, Aviral Kumar, 2022. "Economic policy uncertainty and financing structure: A new panel data evidence from selected Asian economies," Research in International Business and Finance, Elsevier, vol. 60(C).

    More about this item

    Keywords

    Liquidity; Information asymmetry; Bid–ask spreads; Price impact; Zero leverage; Initial bank loans; G14; G32;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jespps:jes-05-2018-0190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.