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

Author

Listed:
  • Zuzana FUNGACOVA

    (Bank of Finland)

  • Christophe J. GODLEWSKI

    (LaRGE Research Center, Université de Strasbourg)

  • Laurent WEILL

    (LaRGE Research Center, Université de Strasbourg)

Abstract
We study the effect of bank loan and bond announcements on borrower’s stock price. We apply an event study methodology on a sample of companies from 17 European countries. We find that debt announcement generates a positive stock market reaction. However our main conclusion is that the issuance of a loan exerts a significantly higher reaction than the issuance of a bond. This finding supports the hypothesis that loan issuance conveys a positive certification effect. The analysis of the determinants of abnormal returns following debt announcements shows a positive impact of financial development and a negative effect of the Eurozone crisis.

Suggested Citation

  • Zuzana FUNGACOVA & Christophe J. GODLEWSKI & Laurent WEILL, 2015. "Does the Type of Debt Matter? Stock Market Perception in Europe," Working Papers of LaRGE Research Center 2015-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    • Handle: RePEc:lar:wpaper:2015-03
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    More about this item

    Keywords

    corporate bonds; syndicated loans; event study; stock returns; Europe.;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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