How do markets react on stock and bond issuance and on loan origination ? An event study for France and Germany 2010 - 2015

Abstract

This study investigates the effects of capital change announcements on a firm’s stock price, using data for the French and German market in the period between January 2010 and December 2015. Unlike previous studies that mostly focus on one single form of capital change announcements, this paper investigates the market reaction to an- nouncements of offering additional equity and bonds as well as announcements of loan origination in one concise paper. The empirical analysis shows that offerings of addi- tional equity are related to a statistically significant decrease in the stock price of firms. The decrease in the stock price is more pronounced in France than in Germany. I also find that announcement effects of loan origination are associated with statistically sig- nificant positive abnormal returns, indicating that financial markets do value external debt financing by loans. In the case of announcements of bond issuance, I cannot find any statistically significant stock market reaction. The results of the event studies are consistent with most of the empirical literature. Furthermore, this paper employs a cross-sectional analysis to get insights about which firm characteristics are related to the abnormal returns. The results of the cross-sectional regression revealed some interesting statistical relationships of the company variables and the announcement period returns. However, the overall explanatory power of the cross-sectional regression is limited, which is also in line with most previous research.