Long Term Performance Around Public Bond Issues

Posted: 13 Jul 1998

See all articles by Robert S. Hansen

Robert S. Hansen

Tulane University - A.B. Freeman School of Business

Vijay Singal

Virginia Tech

Date Written: November 1995

Abstract

For the period 1971-1991, we find that firms issue bonds when a significant long-term upturn in performance levels off. The performance is significantly above normal for the five-year pre-issuance period but quickly falls to normal in the issuance year and remains so for the next five years. This is quite a different picture of performance than prior studies suggest. Besides a shorter observation period in the previous studies, we suggest that this difference is due to rebalancing bias in prior studies. Cross-sectional tests show a positive relationship between bond risk and pre-period abnormal performance, consistent with the adverse-selection model of financing decisions. However, our results also suggest that issuers realize significant pre-period abnormal performance, after accounting for bond risk.

JEL Classification: G32, G30

Suggested Citation

Hansen, Robert S. and Singal, Vijay, Long Term Performance Around Public Bond Issues (November 1995 ). Available at SSRN: https://ssrn.com/abstract=7114

Robert S. Hansen

Tulane University - A.B. Freeman School of Business ( email )

Goldring/Woldenberg Hall
7 McAllister Blvd.
New Orleans, LA 70118
United States
504-865-5624 (Phone)

Vijay Singal (Contact Author)

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

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