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The market reaction to debt announcements: UK evidence surrounding the global financial crisis

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  • Marshall, Andrew
  • McCann, Laura
  • McColgan, Patrick

Abstract

We examine the stock market response to announcements of public, bank and privately placed debt issuance by large UK firms surrounding the global financial crisis of 2008. Prior to the crisis, we find that stock prices respond positively to announcements of bank debt issuance only. This is restricted to the sub-sample of syndicated bank loans and this is suggestive of the certification from multiple lenders conveying a signal of creditworthiness. We find that abnormal returns on the announcement of bank loans have declined since the financial crisis, both in absolute terms and in comparison to alternative borrowing sources. Overall, our results suggest that surrounding the global financial crisis of 2008, bank loans have become less informative as a signal of the creditworthiness of borrowing firms.

Suggested Citation

  • Marshall, Andrew & McCann, Laura & McColgan, Patrick, 2019. "The market reaction to debt announcements: UK evidence surrounding the global financial crisis," The British Accounting Review, Elsevier, vol. 51(1), pages 92-109.
    • Handle: RePEc:eee:bracre:v:51:y:2019:i:1:p:92-109
    DOI: 10.1016/j.bar.2018.04.001
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    4. Khairul Kabir Sumon & Md. Sazib Miyan, 2021. "Responses of Stock Price to the Public Announcement of Forms of Borrowing," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(10), pages 169-169, September.
    5. Harakeh, Mostafa & Leventis, Stergios & El Masri, Tarek & Tsileponis, Nikolaos, 2023. "The moderating role of board gender diversity on the relationship between firm opacity and stock returns," The British Accounting Review, Elsevier, vol. 55(4).
    6. Tampakoudis, Ioannis & Noulas, Athanasios & Kiosses, Nikolaos, 2022. "The market reaction to syndicated loan announcements before and during the COVID-19 pandemic and the role of corporate governance," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Public bonds; Bilateral loans; Syndicated loans; Privately placed debt; Event study; Borrower value;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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