The Long-Run Performance of Stock Returns Following Debt Offerings

38 Pages Posted: 7 Feb 1997

See all articles by Katherine Spiess

Katherine Spiess

University of Notre Dame - Department of Finance

John Affleck-Graves

University of Notre Dame - Department of Finance

Date Written: December 1996

Abstract

We document that firms making straight and convertible debt offerings during 1975-1989 substantially underperformed samples of non-issuing control firms matched on size and book-to-market ratio. This evidence of long-run underperformance following debt offerings is not consistent with the management timing hypothesis, since managers would sell equity, rather than debt, if they could anticipate post-issue underperformance. Instead, our results support the Miller and Rock (1985) theory that all security issues convey negative information to stockholders. As with equity offerings and repurchases, the market appears to underreact at the time of the debt offering announcement so that the full impact of the offering is realized over a longer time horizon.

JEL Classification: G14, G32

Suggested Citation

Spiess, D. Katherine and Affleck-Graves, John Felix, The Long-Run Performance of Stock Returns Following Debt Offerings (December 1996). Available at SSRN: https://ssrn.com/abstract=2116 or http://dx.doi.org/10.2139/ssrn.2116

D. Katherine Spiess (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
264 Bus. Admin. Complex
Notre Dame, IN 46556-0399
United States
219-631-6268 (Phone)
219-631-5255 (Fax)

John Felix Affleck-Graves

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
348 Bus. Admin. Complex
Notre Dame, IN 46556-0399
United States
219-631-6760 (Phone)