Valuation Effects of Corporate Debt Offerings
B. Espen Eckbo
Dartmouth College - Tuck School of Business; European Corporate Governance Institute (ECGI)
February 1, 1985
Journal of Financial Economics (JFE), Vol. 15, 119-151, 1986
This paper analyzes the effect of corporate debt offerings on stock prices. Straight debt offerings have non-positive price effects, while convertible debt offerings have significantly negative effects. Public utility mortgage (non-convertible) bond offerings have marginally negative effects, and the effect is significantly negative when the proceeds are used to finance the utility’s investment program. Cross-sectional regressions reveal no relation between offer-induced price effects and offering size, rating, post-offer changes in abnormal earnings or debt-related tax shields. The evidence is inconsistent with theories predicting that the price effects of capital structure changes go in the direction of the leverage change.
Number of Pages in PDF File: 39
Keywords: Straight debt offerings, convertible debt offerings, capital structure change, information effects, adverse selection, agency hypotheses
JEL Classification: G30, G31, G32Accepted Paper Series
Date posted: October 18, 2009 ; Last revised: December 29, 2009
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