Does the Market React to Surprise Issues of Callable and Noncallable Debt?
نویسنده
چکیده
Insignificant stock market reactions to debt issues have been well documented in the finance literature. This paper segments debt issues into callable/noncallable and long-term/short-term categories, as well as anticipated and unanticipated issues (8 different categories of debt). A logit model was used to classify the debt issues into anticipated and unanticipated categories. Stock market reactions were insignificant for 7 of the 8 debt categories. Market reactions were sizably negative and highly significant for unanticipated long-term noncallable debt issues. These results support the efficiency of the market and Flannery (1986) conjecture that the issuance of long-term noncallable debt is a signal for identifying bad firms.
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