The Announcement Effect of Straight Debt Issues: The Impact of Issuer Motivation and Growth
Date Issued
2009
Date
2009
Author(s)
Hsu, Chih-Hao
Abstract
When cash flow generated from the operations of a company is lower than its capital expenditures, the company needs to finance from outsiders. Financing decisions will signal inside information to the market. They also change financial leverage ratios and free cash flow, so that announcements of financial decisions make abnormal returns. The study analyzes the factors of the announcement effects of straight debt issues in Taiwan with the sample from 1995 to 2008.sing event study and multiple regression analysis, the study finds there is a significantly negative correlation between the growth of issuers and the abnormal returns. Other findings also indicate both cash flow shortfall motivation and capital expenditure motivation generating significant positive abnormal returns. However, the non-refinancing motivation has no significant correlation with abnormal return. Finally, the increase of leverage percentage generates significant negative abnormal return after Taiwan adopted the tax integration system, and leverage change motivation generates significant positive abnormal return before adopting the tax integration system.
Subjects
Straight debt
Announcement effect
Event study
Free cash flow
Tax integration system
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