Leverage change, debt overhang, and stock prices

We document a significant and negative effect of the change in a firm’s leverage ratio on its stock prices. We find that the negative effect is stronger for firms with a greater likelihood of debt overhang. Moreover, firms with an increase in leverage ratio tend to have less future investment. These...

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Main Authors:	CAI, Jie, ZHANG, Zhe
Format:	text
Language:	English
Published:	Institutional Knowledge at Singapore Management University 2009
Subjects:	Leverage Debt overhang Capital structure Corporate Finance Portfolio and Security Analysis
Online Access:	https://ink.library.smu.edu.sg/lkcsb_research/3016 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4015/viewcontent/SSRN_id1107878.pdf
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Institution:	Singapore Management University
Language:	English

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spelling	sg-smu-ink.lkcsb_research-40152024-04-12T06:19:29Z Leverage change, debt overhang, and stock prices CAI, Jie ZHANG, Zhe We document a significant and negative effect of the change in a firm’s leverage ratio on its stock prices. We find that the negative effect is stronger for firms with a greater likelihood of debt overhang. Moreover, firms with an increase in leverage ratio tend to have less future investment. These findings are consistent with Myers' (1977) debt overhang theory that an increase in leverage may lead to future underinvestment, thus reducing a firm's value. 2009-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/3016 info:doi/10.2139/ssrn.1107878 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4015/viewcontent/SSRN_id1107878.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Leverage Debt overhang Capital structure Corporate Finance Portfolio and Security Analysis
institution	Singapore Management University
building	SMU Libraries
continent	Asia
country	Singapore Singapore
content_provider	SMU Libraries
collection	InK@SMU
language	English
topic	Leverage Debt overhang Capital structure Corporate Finance Portfolio and Security Analysis
spellingShingle	Leverage Debt overhang Capital structure Corporate Finance Portfolio and Security Analysis CAI, Jie ZHANG, Zhe Leverage change, debt overhang, and stock prices
description	We document a significant and negative effect of the change in a firm’s leverage ratio on its stock prices. We find that the negative effect is stronger for firms with a greater likelihood of debt overhang. Moreover, firms with an increase in leverage ratio tend to have less future investment. These findings are consistent with Myers' (1977) debt overhang theory that an increase in leverage may lead to future underinvestment, thus reducing a firm's value.
format	text
author	CAI, Jie ZHANG, Zhe
author_facet	CAI, Jie ZHANG, Zhe
author_sort	CAI, Jie
title	Leverage change, debt overhang, and stock prices
title_short	Leverage change, debt overhang, and stock prices
title_full	Leverage change, debt overhang, and stock prices
title_fullStr	Leverage change, debt overhang, and stock prices
title_full_unstemmed	Leverage change, debt overhang, and stock prices
title_sort	leverage change, debt overhang, and stock prices
publisher	Institutional Knowledge at Singapore Management University
publishDate	2009
url	https://ink.library.smu.edu.sg/lkcsb_research/3016 https://ink.library.smu.edu.sg/context/lkcsb_research/article/4015/viewcontent/SSRN_id1107878.pdf
_version_	1814047464248836096

Leverage change, debt overhang, and stock prices

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