Inside ownership and leverage increases. (24th August 2007)

• Record Type: Journal Article
• Authors: Hull, Robert M.; Kwak, Sungkyu; Walker, Rosemary
• Is Part Of: Global business & economics review. Volume 6:Number 2(2004)
• Page Start: 263
• Page End: 279
• Publication Date: 2007-08-24
• Subjects: wealth impact -- inside ownership -- leverage increases -- market response -- senior securities -- junior securities; Economics -- Periodicals; International economic relations -- Periodicals; 330.5
• Languages: English
• ISSNs: 1097-4954

Abstract

We examine the wealth impact of inside ownership on firms announcing leverage increases by issuing senior securities that retire junior securities. We find the market response to leverage increase announcements is influenced by the percentage of inside ownership. We show that firms with greater inside ownership percentages have greater market responses to the positive news conveyed by leverage increase announcements. Regression analysis indicates that inside ownership percentage is the factor best accounting for the market response. The applicability of this finding should hold throughout the world where inside holding percentages are known at the time of the leverage increase announcements.