Stock Price Reaction to Announcements of Capital Structure Changes - From an Industry Leverage Ratio Perspective
(2009)Department of Economics
- Abstract
- In this paper, we investigate how important a firm’s proximity to the industry debt ratio is to its stock price performance. To achieve this goal, event study methodology is applied on stock price reactions upon the announcement of seasoned equity offerings. Depending on whether the offering moves the debt ratio of the firms “closer to” or “away from” the industry median leverage ratio, the average cumulative abnormal returns are different. Empirical tests on the significance and comparison of the average cumulative abnormal returns are conducted. After controlling for other factors which may affect stock price reactions to seasoned equity offerings, we find that firms moving their leverage ratio closer to industry median have less... (More)
- In this paper, we investigate how important a firm’s proximity to the industry debt ratio is to its stock price performance. To achieve this goal, event study methodology is applied on stock price reactions upon the announcement of seasoned equity offerings. Depending on whether the offering moves the debt ratio of the firms “closer to” or “away from” the industry median leverage ratio, the average cumulative abnormal returns are different. Empirical tests on the significance and comparison of the average cumulative abnormal returns are conducted. After controlling for other factors which may affect stock price reactions to seasoned equity offerings, we find that firms moving their leverage ratio closer to industry median have less negative stock price reactions compared to those moving away from it. We therefore conclude that investors see industry median leverage ratios as a benchmark for firms within that industry. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/1436711
- author
- Shehu, Erin and Chen, Pu
- supervisor
- organization
- year
- 2009
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Capital Structure, industry median leverage ratio, equity offering, Economics, econometrics, economic theory, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
- language
- English
- id
- 1436711
- date added to LUP
- 2009-06-09 00:00:00
- date last changed
- 2010-08-03 10:52:23
@misc{1436711,
abstract = {{In this paper, we investigate how important a firm’s proximity to the industry debt ratio is to its stock price performance. To achieve this goal, event study methodology is applied on stock price reactions upon the announcement of seasoned equity offerings. Depending on whether the offering moves the debt ratio of the firms “closer to” or “away from” the industry median leverage ratio, the average cumulative abnormal returns are different. Empirical tests on the significance and comparison of the average cumulative abnormal returns are conducted. After controlling for other factors which may affect stock price reactions to seasoned equity offerings, we find that firms moving their leverage ratio closer to industry median have less negative stock price reactions compared to those moving away from it. We therefore conclude that investors see industry median leverage ratios as a benchmark for firms within that industry.}},
author = {{Shehu, Erin and Chen, Pu}},
language = {{eng}},
note = {{Student Paper}},
title = {{Stock Price Reaction to Announcements of Capital Structure Changes - From an Industry Leverage Ratio Perspective}},
year = {{2009}},
}