Bank Debt Reduction Announcements and Negative Signaling

Robert M. Hull and Richard Moellenberndt

Financial Management, 1994, vol. 23, issue 2

Abstract: We examine 242 NYSE/AMEX and OTC common stock offerings that reduce bank debt and 254 that retire non-bank debt. We discover that bank debt reductions are associated with negative announcement period stock returns that are more than twice the magnitude of the negative returns found for non-bank debt reductions. The significant difference in returns indicates bank debt reductions transmit negative information beyond that previously cited in the stock offering literature. The regression tests support bank debt signaling models that predict that bankers play a unique role as transmitters of information in the capital markets.

Date: 1994
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