New Bank of Finland Discussion Paper

Discussion Paper 19/2015

Does the Type of Debt Matter? Stock Market Perception in Europe

Author(s): Zuzana Fungáčová – Christophe J. Godlewski – Laurent Weill

​We study the effect of bank loan and bond announcements on borrower’s stock price. We apply an event study methodology on a sample of companies from 17 European countries and find that debt announcement generates a positive stock market reaction. However, our main conclusion is that the issuance of a loan exerts a significantly stronger reaction than does the issuance of a bond. This finding supports the hypothesis that loan issuance has a positive certification effect. The analysis of determinants of abnormal returns following debt announcements shows a positive impact of financial development and a negative effect of the Eurozone crisis.

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