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

Sijia Zhang; Andros Gregoriou

doi:10.1016/j.ribaf.2019.05.004

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

Sijia Zhang
, Andros Gregoriou

Research output: Contribution to journal › Article

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 language	English
Pages (from-to)	191-200
Number of pages	10
Journal	Research in international business and finance
Volume	50
DOIs	https://doi.org/10.1016/j.ribaf.2019.05.004
Publication status	Published - 20 May 2019

Keywords

Zero-leverage firms
Price impact
Bid-ask bounce
Liquidity

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10.1016/j.ribaf.2019.05.004

The Price Behavior around Initial Loan AnnouncementsAccepted author manuscript, 289 KBLicence: CC BY-NC-ND

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

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.",

keywords = "Zero-leverage firms, Price impact, Bid-ask bounce, Liquidity",

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N2 - 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.

AB - 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.

KW - Zero-leverage firms

KW - Price impact

KW - Bid-ask bounce

KW - Liquidity

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JO - Research in international business and finance

JF - Research in international business and finance

ER -

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

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Keywords

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