An Empirical Examination of Privately Placed Debt

37 Pages Posted: 15 Sep 2006

See all articles by Uday Chandra

Uday Chandra

SUNY University at Albany

Nandkumar Nayar

Lehigh University - College of Business & Economics

Date Written: August 3, 2006


Private placements of straight debt by publicly traded firms elicit a positive stock price reaction on average, consistent with a market perception that they confer significant certification and monitoring benefits on borrowers. However, long-run stock returns following the debt issues are significantly lower than benchmarks. Our results are consistent with the view that firms issue private debt prior to a decline in operating performance, and they disclose overly optimistic information in the pre-issue period which prevents information on the upcoming downturn from reaching the market in a timely manner. Lenders have inside information on the post-issue performance decline prior to their lending decision, and take steps to protect their investment which do not benefit equity investors. Our results are inconsistent with any certification and monitoring benefits accruing to equity investors from private non-bank debt.

Keywords: Debt, Private Placement

JEL Classification: M40, G14, G30

Suggested Citation

Chandra, Uday and Nayar, Nandkumar, An Empirical Examination of Privately Placed Debt (August 3, 2006). Available at SSRN: or

Uday Chandra (Contact Author)

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States
518-442-9092 (Phone)

Nandkumar Nayar

Lehigh University - College of Business & Economics ( email )

621 Taylor Street, Rauch Business Center
Lehigh University
Bethlehem, PA 18015-3117
United States
610-758-4161 (Phone)
610-758-6429 (Fax)

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