An Empirical Study on Market Response to Corporate Debt Announcements

Sammanfattning: James (1987) finds a positive relationship between stock price change and bank loan announcements and a non-positive relationship between stock price change and public traded debt announcements. Other studies also confirm that the stock market prefers bank loan announcement to public debt announcement and find some driving factors for the difference. In this paper, we empirically test the relationship between stock price change and debt announcement using the most recent ten-year data based on SEC filings, Dow Jones News Retrieval Service and Standard & Poor's corporate ratings. Using market model to get the abnormal returns for event firms and building correlations between the abnormal returns and potential driving factors, we find that market responds differently from 20 years ago.