Does the Type of Debt Matter? Stock Market Perception in Europe

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Title: Does the Type of Debt Matter? Stock Market Perception in Europe
Author: Fungáčová, Zuzana ; Godlewski, Christophe J. ; Weill, Laurent
Series: Quarterly Review of Economics and Finance
Series volume: 75
Series number: February
Year of publication: 2020
Publication date: 18.3.2020
DOI: https://doi.org/10.1016/j.qref.2019.04.009
Page range: 247-256
Keywords: yritykset; luotot; joukkovelkakirjat; osakkeet; hinnat; tuotot; Eurooppa
JEL: G14; G20
Other keywords: corporate bonds; syndicated loans; event study; stock returns; Europe
Abstract: We study the effect of syndicated loan and bond announcements on the stock price of borrowers. No work since James (1987) on US data has compared the impact of both types of announcements on the same sample. Applying an event study methodology on a sample of companies from 17 Western European countries, we find that debt announcements tend to generate a positive stock market reaction. Our main conclusion is that loan issuance exerts a significantly stronger reaction than a bond issuance. 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 for financial development and a negative effect for the Eurozone crisis.


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