Stock Index-Linked Debt and Shareholder Value: Evidence from the Paris Bourse

18 Pages Posted: 18 Mar 2003

See all articles by Gordon S. Roberts

Gordon S. Roberts

York University - Schulich School of Business

Vasumathi Vijayraghavan

Dickinson College - Department of International Business and Management

Sebouh Aintablian

American University of Beirut

Abstract

French banks and non-financial companies issue index-linked debt whose value at maturity is indexed to the CAC 40 or to a basket of European indices. This paper examines stock announcement effects associated with these bonds on three dates: the date the issuer's General Assembly decides future capital needs, the publication in the journal of the COB (the stock market board), and the issue date. We find the issuance of index-linked debt has significant positive announcement effects on the issue date, which we attribute to its market-completion property. In order to examine further whether market completion is at play, we decompose the value of the bond at issue into its straight bond and option values. We determine that the bonds are overvalued again supporting market completion.

Keywords: Announcement Effect, Index-linked Debt, Market Completion

JEL Classification: G32

Suggested Citation

Roberts, Gordon S. and Vijayraghavan, Vasumathi and Aintablian, Sebouh, Stock Index-Linked Debt and Shareholder Value: Evidence from the Paris Bourse. European Financial Management, Vol. 8, pp. 339-356, 2002. Available at SSRN: https://ssrn.com/abstract=330054

Gordon S. Roberts (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 x77953 (Phone)
416-736-5687 (Fax)

Vasumathi Vijayraghavan

Dickinson College - Department of International Business and Management ( email )

United States

Sebouh Aintablian

American University of Beirut ( email )

850 Third Avenue, 18th floor
New York, NY 10022-6297
United States

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