The announcement impact of seasoned equity offerings on bondholder wealth
Previous studies document a negative return to equity on the announcement of an SEO. However, the effects of SEO announcements on bonds have received little attention. We find that bondholders experience a significant positive return on the announcement of an SEO and this effect is more pronounced for bonds with lower ratings. We examine alternate explanations for bond market reactions to SEO announcements including the leverage risk reduction, wealth transfer, and information signaling hypotheses. Overall, our results are most consistent with the leverage risk reduction hypothesis.
Year of publication: |
2009
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Authors: | Elliott, William B. ; Prevost, Andrew K. ; Rao, Ramesh P. |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 33.2009, 8, p. 1472-1480
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Publisher: |
Elsevier |
Keywords: | Security issuance Excess bond returns Information signaling Wealth transfer hypothesis |
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