Journal of Banking & Finance Vol. 33 No. 8 2009

The announcement impact of seasoned equity offerings on bondholder wealth

William Elliott¹; Andrew K. Prevost²; Ramesh P. Rao³

¹ The University of Texas at El Paso · ² Ohio University · ³ Oklahoma State University

Abstract

Previous studies document a negative return to equity on the announcement of an SEO. However, the effects of SEO announcements on bonds have received little attention. We find that bondholders experience a significant positive return on the announcement of an SEO and this effect is more pronounced for bonds with lower ratings. We examine alternate explanations for bond market reactions to SEO announcements including the leverage risk reduction, wealth transfer, and information signaling hypotheses. Overall, our results are most consistent with the leverage risk reduction hypothesis.

DOI

10.1016/j.jbankfin.2009.02.011

Volume

33

Issue

8

Pages

1472-1480

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓