Does the Type of Debt Matter? Stock Market Perception in Europe
34 Pages Posted: 21 Oct 2015 Last revised: 18 May 2019
Date Written: August 21, 2015
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 and find that debt announcement generates a positive stock market reaction. However, our main conclusion is that the issuance of a loan exerts a significantly stronger reaction than does the issuance of a bond. This finding supports the hypothesis that loan issuance has a positive certification effect. The analysis of determinants of abnormal returns following debt announcements shows a positive impact of financial development and a negative effect of the Eurozone crisis.
Keywords: corporate bonds, syndicated loans, event study, stock returns, Europe
JEL Classification: G14, G20
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