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Valuation Effects of Corporate Debt Offerings

39 Pages Posted: 18 Oct 2009 Last revised: 29 Dec 2009

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Date Written: February 1, 1985

Abstract

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

Eckbo, B. Espen, Valuation Effects of Corporate Debt Offerings (February 1, 1985). Journal of Financial Economics (JFE), Vol. 15, 119-151, 1986. Available at SSRN: https://ssrn.com/abstract=1490081

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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