The price behavior around initial loan announcements: Evidence from zero-leverage firms in the UK

Sijia Zhang and Andros Gregoriou

Research in International Business and Finance, 2019, vol. 50, issue C, 191-200

Abstract: This paper analyses price effects of trades around the initial loan announcements for 96 zero-leverage firms listed on the FTSE 350 index over the time of period 2000–2015. Using a very large sample size of 28 million share purchases and 26 million share sales, we discover price continuations follow buys and reversals follow sales. We also observe that purchases have a greater impact on permanent price changes. Once price effects are estimated using quote returns to eliminate the bid-ask bias, the asymmetry in buyer and seller initiated trades is dramatically reduced. Our results suggest that the bid-ask bounce can explain asymmetry in the trading direction of zero-leverage firms when they encounter debt for the first time.

Keywords: Zero-leverage firms; Price impact; Bid-ask bounce; Liquidity (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:50:y:2019:i:c:p:191-200

DOI: 10.1016/j.ribaf.2019.05.004

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