Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Initial bank loans, zero-leverage firms and stock market liquidity

Initial bank loans, zero-leverage firms and stock market liquidity PurposeThe purpose of this paper is to examine stock market reactions and liquidity effects following the first bank loan announcement of zero-leverage firms.Design/methodology/approachThe authors use an event studies methodology in both a univariate and multivariate framework. The authors also use regression analysis.FindingsUsing a sample of 96 zero-leverage firms listed on the FTSE 350 index over the time period of 2000–2015, the authors find evidence of a significant and permanent stock price increase as a result of the initial debt announcement. The loan announcement results in a sustained increase in trading volume and liquidity. This improvement continues to persist once the authors control for stock price and trading volume effects in both the short and long run. Furthermore, the authors examine the spread decomposition around the same period, and discover the adverse selection of the bid–ask spread is significantly related to the initial bank loan announcement.Research limitations/implicationsThe results can be attributed to the information cost/liquidity hypothesis, suggesting that investors demand a lower premium for trading stocks with more available information.Originality/valueThis is the first paper to look at multiple industries, more than one loan and information asymmetry effects. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Initial bank loans, zero-leverage firms and stock market liquidity

Journal of Economic Studies , Volume 46 (5): 24 – Aug 29, 2019

Loading next page...
 
/lp/emerald-publishing/initial-bank-loans-zero-leverage-firms-and-stock-market-liquidity-38e1IsZIRA
Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0144-3585
DOI
10.1108/JES-05-2018-0190
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine stock market reactions and liquidity effects following the first bank loan announcement of zero-leverage firms.Design/methodology/approachThe authors use an event studies methodology in both a univariate and multivariate framework. The authors also use regression analysis.FindingsUsing a sample of 96 zero-leverage firms listed on the FTSE 350 index over the time period of 2000–2015, the authors find evidence of a significant and permanent stock price increase as a result of the initial debt announcement. The loan announcement results in a sustained increase in trading volume and liquidity. This improvement continues to persist once the authors control for stock price and trading volume effects in both the short and long run. Furthermore, the authors examine the spread decomposition around the same period, and discover the adverse selection of the bid–ask spread is significantly related to the initial bank loan announcement.Research limitations/implicationsThe results can be attributed to the information cost/liquidity hypothesis, suggesting that investors demand a lower premium for trading stocks with more available information.Originality/valueThis is the first paper to look at multiple industries, more than one loan and information asymmetry effects.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Aug 29, 2019

References