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Does the Type of Debt Matter? Stock Market Perception in Europe

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  • Zuzana FUNGACOVA

    () (Bank of Finland)

  • Christophe J. GODLEWSKI

    () (LaRGE Research Center, Université de Strasbourg)

  • Laurent WEILL

    () (LaRGE Research Center, Université de Strasbourg)

Abstract

We study the effect of bank loan and bond announcements on borrower’s stock price. We apply an event study methodology on a sample of companies from 17 European countries. We find that debt announcement generates a positive stock market reaction. However our main conclusion is that the issuance of a loan exerts a significantly higher reaction than the issuance of a bond. This finding supports the hypothesis that loan issuance conveys a positive certification effect. The analysis of the determinants of abnormal returns following debt announcements shows a positive impact of financial development and a negative effect of the Eurozone crisis.

Suggested Citation

  • Zuzana FUNGACOVA & Christophe J. GODLEWSKI & Laurent WEILL, 2015. "Does the Type of Debt Matter? Stock Market Perception in Europe," Working Papers of LaRGE Research Center 2015-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2015-03
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    Cited by:

    1. 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.

    More about this item

    Keywords

    corporate bonds; syndicated loans; event study; stock returns; Europe.;

    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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