Abstract

This study examines the long-run stock return and operating performance following private debt placements. Presumably, private debt investors are more sophisticated and can monitor the issuing firms more effectively. Prior research suggests that equity and public debt issuers underperform various stock return benchmarks in the long run. It is also found that there is significant deterioration in long-run operating performance for equity and public debt offering firms. It is generally concluded that managers time the market when issuing equity and public debt or investor over-confidence. In contrast, using the buy-and-hold method, Fama three-factor model, or Carhart four-factor model, we do not find any consistent patterns of long-run under- or over-performance in stock returns and operating measures following private debt placements. Due to tighter monitoring, the information asymmetry problems are mitigated for private debt placements.  

Keywords

private debt placementlong-run stock returnlong-run operating performance