CAPITAL STRUCTURE CHANGE: AN ANALYSIS OF INVESTMENT AND FINANCING EFFECTS (DEBT ISSUE, ALL-EQUITY, EVENT STUDY, LEVERAGE).

摘要

In an intertemporal context, managers evaluate the benefit/cost trade-offs amongst sources of external financing and make choices (debt or equity) with the objective of maximizing stockholder wealth. In order to analyze the efficacy of external financing, this study is an empirical analysis of the effect of long-term debt financing of equity value.; It is motivated by contradictory evidence, in published research, of the effect of debt financing. In particular, it has been found that debt increasing exchange offers have a positive impact on stock prices. On the other hand, the announcement of a debt issue by a firm results in a negative stock price change. In this study the first long-term debt issue by a previously all-equity financed firm is analyzed.; Since an issue of debt increases a firm's asset size the impact of debt is the combination of a financing effect and an investment effect. In order to focus on the pure financing effect of debt (that is, net of investment effects) this study uses two different methods to control the investment effect. The first is a sample of investment announcements and the second is a sample of equity issue announcements by unlevered firms.; The principal results of this study are that when an all-equity financed firm issues long-term debt the impact on stock prices is negative. The sample of investment announcement reveals a positive effect on equity value. Therefore after controlling the investment effect, the pure financing effect of debt on stock prices is negative. The second control sample for investment effects shows that equity issues by all-equity financed firms have a negative impact on equity value; however the small size and biased nature of this sample precluded its use as an effective control sample.; This study provides evidence that an external financing announcement, specifically a firm's first long-term debt issue, has a negative effect on equity value. Further it is shown that the pure financing effect of debt is negative, thereby supporting the hypothesis that debt reduces a firm's growth opportunities. The empirical evidence does not lend credence to the tax-advantage and information signaling hypotheses of debt financing.