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

Listed author(s):
  • Zuzana FUNGACOVA

    ()

    (Bank of Finland)

  • Christophe J. GODLEWSKI

    ()

    (LaRGE Research Center, Université de Strasbourg)

  • Laurent WEILL

    ()

    (LaRGE Research Center, Université de Strasbourg)

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.

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File URL: http://ifs.u-strasbg.fr/large/publications/2015/2015-03.pdf
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Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2015-03.

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Date of creation: 2015
Handle: RePEc:lar:wpaper:2015-03
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