The market reaction to debt announcements: UK evidence surrounding the global financial crisis

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Abstract

We examine the stock market response to announcements of public, bank and privately placed debt issuance by large UK firms surrounding the global financial crisis of 2008. Prior to the crisis, we find that stock prices respond positively to announcements of bank debt issuance only. This is restricted to the sub-sample of syndicated bank loans and this is suggestive of the certification from multiple lenders conveying a signal of creditworthiness. We find that abnormal returns on the announcement of bank loans have declined since the financial crisis, both in absolute terms and in comparison to alternative borrowing sources. Overall, our results suggest that surrounding the global financial crisis of 2008, bank loans have become less informative as a signal of the creditworthiness of borrowing firms.
Original languageEnglish
Pages (from-to)92-109
Number of pages18
JournalBritish Accounting Review
Volume51
Issue number1
Early online date20 Apr 2018
DOIs
Publication statusPublished - 31 Jan 2019

Keywords

  • public bonds
  • bilateral loans
  • sydicated loans
  • privately placed debt
  • event study
  • borrower value

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