Investment opportunities,free cash flow,and stock valuation effects of secured debt offerings |
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| Authors: | Shao-Chi Chang Sheng-Syan Chen Ailing Hsing Chia Wei Huang |
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| Institution: | (1) Institute of International Business, National Cheng Kung University, Tainan, Taiwan;(2) Department of Finance, College of Management, National Taiwan University, Taipei, Taiwan;(3) Department of Finance, College of Management, Yuan Ze University, Taoyuan, Taiwan |
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| Abstract: | This paper examines the role of investment opportunities and free cash flow in explaining the source of the stock valuation
effects of secured debt offerings. We find a significantly positive relation between a firm's investment opportunities and
its stock price response to announcements of secured debt issues. This evidence supports the investment opportunities hypothesis
that secured debt financing is more valuable for issuing firms with high growth opportunities. In contrast, we find a lack
of support for the free cash flow hypothesis. These findings hold even after controlling for other potentially influential
variables. Our study provides a better understanding of the relative importance of various potential determinants in explaining
the variation in the valuation impact of secured debt issues.
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| Keywords: | Secured debt Investment opportunities Free cash flow |
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