Show Less
Restricted access

Analyzing Wealth Effects for Bondholders

New Insight on Major Corporate Events from the Debtholders’ Perspective


Daniel Maul

Despite the growing importance of funds through corporate bonds, most investigations on the short-term effects of certain events on firm value are only conducted for stocks. Thus, research provides an incomplete view on how firm value is truly affected. The author fills this gap and focuses his research on corporate debt. The first section of the book provides a comprehensive overview of existing methodologies to calculate abnormal bond returns. Subsequently, two frameworks are selected to investigate the importance of corporate debt when empirically assessing major corporate events: Synergy disclosure at M&A announcements and debt offerings through reopenings. Both provide evidence for the necessity to regard corporate debt to fully assess changes in firm value.
Show Summary Details
Restricted access

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...

You are not authenticated to view the full text of this chapter or article.

This site requires a subscription or purchase to access the full text of books or journals.

Do you have any questions? Contact us.

Or login to access all content.