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The performance of corporate bond issuers in times of financial crisis: empirical evidence from Latin America

Berninger, Marc ; Fiesenig, Bruno ; Schiereck, Dirk (2021)
The performance of corporate bond issuers in times of financial crisis: empirical evidence from Latin America.
In: Journal of Risk Finance, 2021, 22 (1)
doi: 10.26083/tuprints-00018676
Article, Secondary publication, Postprint

Copyright Information: CC BY-NC 4.0 International - Creative Commons, Attribution NonCommercial.

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Item Type: Article
Type of entry: Secondary publication
Title: The performance of corporate bond issuers in times of financial crisis: empirical evidence from Latin America
Language: English
Date: 2021
Year of primary publication: 2021
Journal or Publication Title: Journal of Risk Finance
Volume of the journal: 22
Issue Number: 1
DOI: 10.26083/tuprints-00018676
Corresponding Links:
Origin: Secondary publication

Purpose – The fundamental theory of Modigliani and Miller (1958) states that a firm’s financing decisions are independent from the firm’s value. Nevertheless, several empirical studies as well as theoretical approaches from the past decade impugn this relation for real markets with their immanent inefficiencies. However, these questions are rather than academic in nature: Especially the influence of macroeconomic conditions on the market perception of debt issues is from high economic importance, since the need for new liquidity usually becomes even more urgent when the economic conditions worsen.

Design/methodology/approach – This paper analyzes the reaction of shareholders to the issue of debt by Latin American firms under special consideration of the macroeconomic sentiment. To do so, a sample of debt issued by Latin American companies between 2003 and 2010 is empirically examined through an event study.

Findings – The authors empirically demonstrate that specifically in Latin America, debt issuing companies show a significant underperformance during recessionary periods and an overperformance during nonrecessionary periods. These findings differ from previous results for mature capital markets. The authors conclude that not only the overall economic conditions matter to explain stock market reactions on bond issues but also the maturity of the corporate debt market plays an important role.

Originality/value – The authors provide first evidence that the previously described changes in the returns on specific stocks depending on the economic sentiment (Baker and Wurgler, 2006) are under certain conditions also present in the market for corporate debt.

Keywords – Emerging markets, Debt issue, Sentiment, Event study, Corporate debt, Financing decisions, Firm value

Paper type – Research paper

Status: Postprint
URN: urn:nbn:de:tuda-tuprints-186763
Additional Information:

‘This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) license. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please contact permissions@emerald.com'

Classification DDC: 300 Social sciences > 330 Economics
Divisions: 01 Department of Law and Economics > Betriebswirtschaftliche Fachgebiete > Corporate finance
Date Deposited: 14 Jul 2021 07:35
Last Modified: 14 Jul 2021 07:36
URI: https://tuprints.ulb.tu-darmstadt.de/id/eprint/18676
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