VALUATION EFFECT OF ISSUING NONSUBORDINATED VERSUS SUBORDINATED DEBT

Alex P. Tang and Ronald F. Singer

Journal of Financial Research, 1993, vol. 16, issue 1, 11-21

Abstract: Recent studies analyzing stock market reaction to announcements of straight debt offerings report, in general, insignificant abnormal stock returns. In this study we examine the effect of debt seniority on market reaction. The evidence shows weakly positive abnormal returns upon the announcements of nonsubordinated straight debt offerings. In contrast, announcements of subordinated straight debt offerings induce significantly negative abnormal returns. Our findings generally support the information release hypothesis.

Date: 1993
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