PARTIAL ANTICIPATION, THE FLOW OF INFORMATION AND THE ECONOMIC-IMPACTOF CORPORATE-DEBT SALES

Corporate debt sales have been regarded as ''no news'' events because there is no significant price reaction on average to their announcemen t. We explore the hypothesis that this lack of average price reaction to debt sale announcements is explained by the partial anticipation of debt offers. Theory suggests that the demand for debt capital is fund amentally related to changes in the sources and uses of funds, and we find evidence that earnings are significantly lower, investment growth is significantly higher, and, for some issuers, debt refunding requir ements are significantly greater in the period immediately prior to is sue than in periods well before and after the issue We find that this preissue information conditions investors' expectations of issue, ther eby affecting the cross-sectional announcement date price reaction to debt sales in two ways. First, announcement date price reactions are n egative, on average, for unanticipated offers or for those offers wher e prior information suggests that an issue is unlikely. Second, boldin g the probability of issue constant, announcement date price reactions are significantly more negative for offers that raise more capital th an investors expected. These results are consistent with cash flow sig naling and asymmetric information models of corporate financings.