The Effect of Corporate Bond Issuance on Stock Price and Future Performance
Date Issued
2012
Date
2012
Author(s)
Chiang, Chung-Ping
Abstract
One of the major channels that companies raise funds is by issuing corporate bonds. Issuing bonds could avoid changes of the right to corporate management and get money without diluting shareholder’s earning. Moreover, the interest expense of the bonds could save the tax. However, the debt rate will rise and the financial structure will change. In order to analyze the effects of bonds issuance on future performance, the usages of the bonds are classified into three groups, productive financing, non-productive financing and uncertain usage financing. This study also uses event study method to examine whether the announcement of bonds issuance result in cumulative abnormal return. The results are as follows:
1. Productive financing significantly increases the sales growth rate in the year of bonds issuance and the second year after that. Non-productive financing significantly decreases the sales growth rate in the second year after the bonds issuance.
2. The announcement of productive financing and uncertain usage financing result in significantly positive cumulative abnormal return. However, the announcement of non-productive financing does not cause significant negative effect on cumulative abnormal return.
3. The issuance of prospectus does not cause any significant cumulative abnormal return. Probably, the effects are revealed on the day of announcement. Therefore, the prospectus does not provide extra information for investors.
1. Productive financing significantly increases the sales growth rate in the year of bonds issuance and the second year after that. Non-productive financing significantly decreases the sales growth rate in the second year after the bonds issuance.
2. The announcement of productive financing and uncertain usage financing result in significantly positive cumulative abnormal return. However, the announcement of non-productive financing does not cause significant negative effect on cumulative abnormal return.
3. The issuance of prospectus does not cause any significant cumulative abnormal return. Probably, the effects are revealed on the day of announcement. Therefore, the prospectus does not provide extra information for investors.
Subjects
Corporate Bonds
Productive Financing
Event Study
Announcement
Prospectus
Type
thesis
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