The announcement impact of seasoned equity offerings on bondholder wealth |
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| Authors: | William B Elliott Andrew K Prevost Ramesh P Rao |
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| Institution: | 1. Department of Economics and Finance, College of Business Administration, University of Texas at El Paso, 500 W. University Ave., CBA 227, El Paso, TX 79968, United States;2. Department of Finance, College of Business, Ohio University, Athens, OH 45701, United States;3. Department of Finance, Spears School of Business, Oklahoma State University, Stillwater, OK 74078, United States |
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| 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. |
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| Keywords: | G30 G32 |
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