The Performance of Long‐run Stock Returns Following Issues of Public and Private Debt

Ilia D. Dichev and Joseph D. Piotroski

Journal of Business Finance & Accounting, 1999, vol. 26, issue 9‐10, 1103-1132

Abstract: This study uses a balance sheet‐based method to identify both public and private debt issues. This feature is important because there have been no studies of the information content of private debt issues, while private debt is substantially more prevalent than public debt. We find no abnormal returns following straight debt issues. However, convertible debt issuers under‐perform the market on the order of 50 to 70 percent in the following five years. In pursuit of explanations, we find that convertible debt issues signal a deterioration of future profitability, which accounts for at least part of the stock price underperformance.

Date: 1999
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