New Insight on Major Corporate Events from the Debtholders’ Perspective
2. Review of Event Study Procedures to detect Wealth Effects in Bondholder Research
Lin, Liu, and Wu (2011), Bessembinder and Maxwell (2008) as well as Edwards, Harris, and Piwowar (2007) provide initial insights into the importance of the US corporate bond market.5 At the end of 2006, the outstanding principal in US corporate bonds amounts to $5.37 trillion and is therefore larger than either US Treasury obligations or municipal bond obligations. Issuance of corporate bonds between 1997 and 2006 is more than three times the number of equity raised through IPO and SEO combined, with a total of $4.6 trillion. Obtaining trades reported to TRACE (Trade Reporting and Compliance Engine) between January 2003 and January 2005, Edwards et al. (2007) collect a sample of 12,320,016 trades, representing $9.3 trillion and almost 22,000 non-convertible bonds. Comparing the bond and stock data from Thomson One Banker presents the same pattern: between January 2000 and November 2014 non-financial US-Companies (European-Companies) issued non-convertible bonds with a total principal value of almost $13 trillion (over €6 trillion). Equity capital raised through initial and secondary offerings, on the other hand, only amounted to slightly more (less) than $3 trillion (€3 trillion). Despite the undeniable enormous importance of corporate bonds as a source of external financing, most researchers focus solely on stock price behavior to evaluate the impact of various corporate events. Conducting a census of event studies that focus on stock price effects in five top-tier journals6 which are published between 1974 and 2000, Kothari and Warner (2005) find a total number of 565...
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