The market reaction to debt announcements: UK evidence surrounding the global financial crisis

Abstract

We examine the stock market response to announcements of public, bank and privately placed debt issuance by large UK firms surrounding the global financial crisis of 2008. Prior to the crisis, we find that stock prices respond positively to announcements of bank debt issuance only. This is restricted to the sub-sample of syndicated bank loans and this is suggestive of the certification from multiple lenders conveying a signal of creditworthiness. We find that abnormal returns on the announcement of bank loans have declined since the financial crisis, both in absolute terms and in comparison to alternative borrowing sources. Overall, our results suggest that surrounding the global financial crisis of 2008, bank loans have become less informative as a signal of the creditworthiness of borrowing firms.

Smoothed or not smoothed: The impact of the 2008 global financial crisis on dividend stability in the UK

“…The UK economy suffered hardest immediate hit by the crisis as UK banks experienced bigger losses than any other economies. This in turn triggered a near meltdown in the banking system and led to a huge credit crunch especially for UK publicly listed companies which have generally largely relied on banks as a source of financing (Akbar et al, 2017;Marshall et al, 2019). Given the restricted access to external finance and credit supply and considering the volatile earnings, even losses, as a results of the global financial crisis, one can argue that UK firms would have made more use of the internal funds for their liquidity needs and thus deferring dividend payments during and post crisis period.…”

Market response to syndicated loan announcements from high‐profile failed and acquiring banks during the global financial crisis

“…Contemporary research by Marshall et al . () suggests that mitigation of selection bias naturally occurs because even if borrowers choose not to publicise a new loan, the information may be disseminated by analysts or by lenders who want to receive league table credit ,. The increase in information provided by dedicated information providers over time has reduced the ability of borrowers to announce loans selectively.…”

“…While we acknowledge the self-selection problem identified byMaskara and Mullineaux (2011), it should be noted that their data covered the period 1987-2004, whereas the data period inMarshall et al (2019Marshall et al ( ) was 2001Marshall et al ( -2013 Various research organisations produce league tables that are designed to rank companies on a variety of criteria. Regularly published league tables rank syndicated lender activity and signal lender status and reputation.© 2019 Accounting and Finance Association of Australia and New Zealand D.Gasbarro et al/Accounting & Finance 60 (2020) 435-470 …”

Sendi̇kasyon Kredi̇leri̇ İle Hi̇sse Senedi̇ Pi̇yasasi Hareketleri̇ Arasindaki̇ İli̇şki̇ni̇n Anali̇zi̇: Türki̇ye Örneği̇

“…Although studies on this subject are limited in the literature, it is seen that current studies aim to measure the reaction of the stock market to syndication announcements (Megginson, Poulsen & Sinkey, 1995;Çukur, Eryiğit & Duran, 2008;Godlewski, Fungáčová & Weill, 2011;Godlewski, 2014;Sarıgül, 2015;Sakarya & Sezgin, 2015;Marshall, McCann & McColgan, 2018). The results of these studies show that the syndication loan announcements, in general, have a positive effect on the stock market.…”

“…Such announcements of banks receiving large loans financed by international credit pools contribute to the value of the borrower even during the crisis. Marshall, McCann & McColgan (2018) examined the response of the stock exchange to banks and firms' debt issuances, which were announced to the public in 2008 during the global financial crisis. Before the crisis, they determined that stock prices only reacted positively to the bank credit agreement announcements.…”