The Price Behavior around Initial Loan Announcements: Evidence from Zero-leverage Firms in the UK

Sijia Zhang, Andros Gregoriou

    Research output: Contribution to journalArticle

    Abstract

    This paper analyses price effects of trades around the initial loan announcements for 96 zero-leverage firms listed on the FTSE 350 index over the time of period 2000–2015. Using a very large sample size of 28 million share purchases and 26 million share sales, we discover price continuations follow buys and reversals follow sales. We also observe that purchases have a greater impact on permanent price changes. Once price effects are estimated using quote returns to eliminate the bid-ask bias, the asymmetry in buyer and seller initiated trades is dramatically reduced. Our results suggest that the bid-ask bounce can explain asymmetry in the trading direction of zero-leverage firms when they encounter debt for the first time.

    Original languageEnglish
    Pages (from-to)191-200
    Number of pages10
    JournalResearch in international business and finance
    Volume50
    DOIs
    Publication statusPublished - 20 May 2019

    Keywords

    • Zero-leverage firms
    • Price impact
    • Bid-ask bounce
    • Liquidity

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