VALUATION EFFECT OF ISSUING NONSUBORDINATED VERSUS SUBORDINATED DEBT

Recent studies analyzing stock market reaction to announcements of str aight debt offerings report, in general, insignificant abnormal stock returns. In this study we examine the effect of debt seniority on mark et reaction. The evidence shows weakly positive abnormal returns upon the announcements of nonsubordinated straight debt offerings. In contr ast, announcements of subordinated straight debt offerings induce sign ificantly negative abnormal returns. Our findings generally support th e information release hypothesis.