Initial bank loans, zero-leverage firms and stock market liquidity: New empirical evidence from the UK

Sijia Zhang, Andros Gregoriou

    Research output: Contribution to journalArticlepeer-review


    Purpose: The purpose of this paper is to examine stock market reactions and liquidity effects following the first bank loan announcement of zero-leverage firms. Design/methodology/approach: The authors use an event studies methodology in both a univariate and multivariate framework. The authors also use regression analysis. Findings: Using a sample of 96 zero-leverage firms listed on the FTSE 350 index over the time period of 2000–2015, the authors find evidence of a significant and permanent stock price increase as a result of the initial debt announcement. The loan announcement results in a sustained increase in trading volume and liquidity. This improvement continues to persist once the authors control for stock price and trading volume effects in both the short and long run. Furthermore, the authors examine the spread decomposition around the same period, and discover the adverse selection of the bid–ask spread is significantly related to the initial bank loan announcement. Research limitations/implications: The results can be attributed to the information cost/liquidity hypothesis, suggesting that investors demand a lower premium for trading stocks with more available information. Originality/value: This is the first paper to look at multiple industries, more than one loan and information asymmetry effects.

    Original languageEnglish
    Pages (from-to)1028-1051
    Number of pages24
    JournalJournal of Economic Studies
    Issue number5
    Publication statusPublished - 29 Aug 2019


    • Bid–ask spreads
    • Information asymmetry
    • Initial bank loans
    • Liquidity
    • Price impact
    • Zero leverage


    Dive into the research topics of 'Initial bank loans, zero-leverage firms and stock market liquidity: New empirical evidence from the UK'. Together they form a unique fingerprint.

    Cite this