Abstract
We analyzed the effects of ownership structure, capital structure and growth opportunities on stock price reactions when companies issued debt or equity. Our results, based on event study methodology and IV regressions from a sample of 70 Chilean firms, indicate that controlling shareholder ownership has a negative effect on stock price reactions for debt issuances and a positive effect for equity issuance. These results indicate that debt issuances are a substitute for majority shareholder monitoring, and that equity issuances are associated with superior corporate performance. Equity issuances are a means for expropriating wealth from non-controlling shareholders. Debt and growth opportunities have a non-linear effect.
Highlights
Capital structure decisions have been widely researched in recent decades
This stock price reaction is sufficient to compensate for the negative abnormal returns that occur during the announcement and issuance periods
Our research indicates that debt issuances generated 2.43% abnormal returns and equity issuances generated 0.92%
Summary
Capital structure decisions have been widely researched in recent decades. Many researchers have focused their attention on the relationship between information asymmetry and stock price reactions to changes in firms’ capital structure , due to the possible effects of this relationship on shareholder wealth. For the Chilean market, it is relevant to analyze this empirical relationship as Chile has weak investor protections, while firm ownership is highly concentrated among controlling shareholders As a result, this favors wealth redistribution away from minority shareholders through capital structure changes. This paper analyzes the effect of ownership structure, growth opportunities and leverage on stock price reactions associated with capital structure changes in Chilean companies. These reactions measure changes in shareholder wealth It analyzes the impacts of ownership structure and the possible non-monotonous effects of debt and growth opportunities on shareholder wealth. This is relevant for investors and firms because it reveals that the stock market interprets these qualities in different ways during capital structure change processes.
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