Pricing Strategy and Corporate Bond Value: Evidence from the Airline Industry

Min Shi and Wei Yu
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Min Shi: California State University, Los Angeles, USA
Wei Yu: California State Polytechnic University, Pomona, USA

International Journal of Operations Research and Information Systems (IJORIS), 2012, vol. 3, issue 3, 40-52

Abstract: Pricing strategy is expected to impose profound impacts on a firm’s cash flow and default risk. However, little research has been done to examine its direct impacts on financial markets. Applying event study methodology on the airline industry data, this paper aims to fill this gap by investigating whether and how corporate bond value is affected by pricing cut events in the airline industry in various time windows. The authors’ empirical results find significant positive abnormal bond returns in the announcement month. However, the price effect becomes insignificant and vanishes in the following months. By integrating financial market and marketing behavior analysis, this paper provides managerial insights for both marketing managers and corporate bond investors.

Date: 2012
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