An empirical investigation of the role of private debt in corporation finance.

摘要

The following paper is an empirical investigation of the role of private debt in a firm's capital structure. This paper reviews the literature on the role of private securities (both debt and equity) in a firm's capital structure and develops several empirical tests of these theories as they relate to private debt. In addition, we combine theoretical work related to private debt and covenants in order to test whether or not the presence of private debt in a firm's capital structure influences the valuation of its other securities, the investment decisions of the firm, as well as its earnings. The tests are conducted utilizing a sample of firms held by the Private Placement Group of The Prudential.; This paper makes a contribution to the existing literature by motivating and answering the following key questions for research: (1) Is a private debt financing associated with a positive abnormal change in credit quality? (2) Does the announcement of a private debt financing produce a positive abnormal response in the price of the issuing firm's public equity? (3) Is there a relationship between the announcement of a private debt financing and the magnitude of the long term earnings and investment of the issuing firm? Results indicate that there is a statistically significant increase in credit quality, a reduction in cash flow from investment, a statistically significant reduction in fixed assets and significantly negative abnormal earnings in Years 0 and 1 relative to the private debt financing. However, abnormal earnings are significantly positive in Year 3, and there are significantly positive abnormal stock returns subsequent to the pricing of the private debt issue.; The causal factors for the results mentioned above do give some support for the role of private investors as monitors and as a mitigating factor in the underinvestment problem and agency problems of debt and equity.