Valuation Effects of Cancelled Debt Offerings

Stock Price Behavior of Pure Capital Structure Issuance and Cancellation Announcements

“…The two‐day CER results for the senior‐for‐junior fully canceled portfolio contrast sharply with the senior offering studies of Officer and Smith (1986), Mikkelson and Partch (1988), and Jensen and Pugh (1991). The differences in signs and magnitudes suggest that the purpose of the senior issue determines the market's issuance and cancellation responses.…”

The Market Reaction to Canceled Equity Offerings

“…1981 was the year of a major fall in bond prices (the U.S. Treasury sold a twenty-year bond issue with a 15 3/4 percent coupon in that year). Note that Jensen and Pugh [6] find similar clustering for straight bonds, 25 percent of the cancellations (from 1974 through 1987) occurred in 1981. This clustering appears consistent with findings that most securities are withdrawn be- cause of deteriorating market conditions.…”

Market Reaction to the Withdrawal of Private Investments in Public Equity

“…CAR (-2, 2), CAR (-1, 1) are -2.44%, -1.88% respectively and both are significant at the 5% level. The preevent windows are insignificant, but the post-event windows (1,5) and (1, 10) have significantly negative CARs at the 10% level. These results suggest that the negative market reaction is only present at and post the withdrawal announcement; the market doesn't anticipate the withdrawal.…”

“…Jensen and Pugh examine the price behavior of the firm's common stock associated with cancelled straight debt offerings. They find negative abnormal returns for the cancellation announcements [5]. Under the notion that external financing may signal that the firm needs cash to take advantage of unexpected new investment opportunities, a withdrawal of external financing may indicate a decline in investment opportunities and therefore leads to a significant negative market reaction.…”

“…Jensen and Pugh find that the negative abnormal returns at withdrawal of straight debt are significant only when unfavorable market conditions are the reason for withdrawal; the results are insignificant for other withdrawal reasons. Reasons for the offering have significant effect on the returns at the withdrawal: the negative market reaction is associated with the offerings to finance for capital expenditures [5].…”