Abstract |
We examine the stock price reaction to announcements of privately placed debt. The results suggest no effect for firms with a public debt rating and offsetting effects for firms without a public debt rating. If the private placement appears to reduce monitoring for a firm without a debt rating, it produces a significantly negative price response. However, if it appears to increase financial flexibility and bargaining power, it produces a positive reaction. Overall, the evidence suggests that private placements of debt are more similar to public bond issues than bank loans in terms of the price reaction at the announcement.
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Recommended Citation |
Dennis, Steven A; Lu, Weili (2008). New Considerations in the Announcement Effects of Privately Placed Debt. International Review of Financial Analysis 17(3) 507-522. doi: 10.1016/j.irfa.2006.09.005. Retrieved from https://oaks.kent.edu/finpubs/3
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