The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt

The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt This study uses a balance sheet‐based method to identify both public and private debt issues. This feature is important because there have been no studies of the information content of private debt issues, while private debt is substantially more prevalent than public debt. We find no abnormal returns following straight debt issues. However, convertible debt issuers under‐perform the market on the order of 50 to 70 percent in the following five years. In pursuit of explanations, we find that convertible debt issues signal a deterioration of future profitability, which accounts for at least part of the stock price underperformance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt

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Publisher
Wiley
Copyright
Copyright © 1999 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00288
Publisher site
See Article on Publisher Site

Abstract

This study uses a balance sheet‐based method to identify both public and private debt issues. This feature is important because there have been no studies of the information content of private debt issues, while private debt is substantially more prevalent than public debt. We find no abnormal returns following straight debt issues. However, convertible debt issuers under‐perform the market on the order of 50 to 70 percent in the following five years. In pursuit of explanations, we find that convertible debt issues signal a deterioration of future profitability, which accounts for at least part of the stock price underperformance.

Journal

Journal of Business Finance & AccountingWiley

Published: Nov 1, 1999

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