Valuation Effects of Corporate Debt Offerings
39 Pages Posted: 18 Oct 2009 Last revised: 29 Dec 2009
Date Written: February 1, 1985
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.
Keywords: Straight debt offerings, convertible debt offerings, capital structure change, information effects, adverse selection, agency hypotheses
JEL Classification: G30, G31, G32
Suggested Citation: Suggested Citation