Debt Structure Adjustments and Long-Run Stock Price Performance

43 Pages Posted: 27 Jun 2000

See all articles by Sudip Datta

Sudip Datta

Wayne State University - Finance Department

Kartik Raman

Bentley University

Mai Iskandar-Datta

Wayne State University - Finance Department

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Abstract

We examine the long-run implications of debt structure adjustments using a sample of U.S. bond IPOs from 1971 to 1994. Bond IPOs result in simultaneous and pronounced changes in both debt maturity and debt ownership structures. We document that firms engaging in debt IPOs substantially underperform their size-and-book-to-market matched benchamarks by 33.39% and 55.99% over the tree- and five-year post-offer periods. Our results are strikingly similar to those reported for equity offers but contrast the evidence for seasoned debt offers. We find evidence that debt IPOs are timed to coincide with the market having the highest expectations concernig firms' prospects. A negative relation is documented between debt maturity and future growth opportunities. In part, the underperformance can be attributed to significantly reduced growth opportunities following the offering. Post-offer underperformance is more pronounced for (a) longer maturity issues, and (b)firms that do not experience an increase in bank monitoring.

JEL Classification: G12,G24, G30,D82

Suggested Citation

Datta, Sudip and Raman, Kartik and Iskandar-Datta, Mai E., Debt Structure Adjustments and Long-Run Stock Price Performance. Available at SSRN: https://ssrn.com/abstract=232288 or http://dx.doi.org/10.2139/ssrn.232288

Sudip Datta (Contact Author)

Wayne State University - Finance Department ( email )

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Kartik Raman

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

Mai E. Iskandar-Datta

Wayne State University - Finance Department ( email )

328 Prentis Bldg.
5201 Cass Avenue
Detroit, MI 48202
United States
(313) 577-9509 (Phone)

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