Premium
Call it good, bad or no news? The valuation effect of debt issues
Author(s) -
Zhu Yushu
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12205
Subject(s) - valuation (finance) , leverage (statistics) , conditionality , debt , private information retrieval , ex ante , capital structure , business , economics , public information , valuation effects , cost of capital , financial economics , monetary economics , actuarial science , finance , microeconomics , public relations , macroeconomics , profit (economics) , statistics , mathematics , machine learning , politics , computer science , political science , law
Studies investigating market reactions to changes in capital structure aim to find the impact of private information conveyed. However, these studies ignore that financial decisions are not made randomly but are conditional on managers’ private information. Using a sample of U.S. leverage‐increasing public companies with public long‐term debt offerings, we find that debt offerings convey no new information to the markets after considering the conditionality of decisions. We also show that results can be biased if the deterministic role played by private information ex ante is omitted, which may explain the conflicting valuation evidence found in the literature.