Authors : Soonwook Hong and Hyunmin Oh
Abstract: This study analyzes the effects of changes in the capital structure caused by raising capital on stock returns. Among the various factors influencing stock returns, this study focuses on three factors: capital financing types, capital structures and accrual-based earnings management. The signaling effects of raising capital by issuing bonds or equity affect stock returns, as do changes in the capital structure from different capital raising types. In addition, earnings management before financing affects stock returns. This study analyzes these three types of effects separately. In general, a firm’s capital structure improves with issuing equity as its debt ratio declines, while issuing bonds deteriorates the capital structure since the firm’s debt ratio increases. However, stock returns respond differently to changes of the same size in the capital structure due to asymmetrical volatility of stock returns, which can be explained by the leverage effect, volatility feedback effect and asymmetric information. According to the results of our analysis, change in the real debt ratio to the target debt ratio caused by issuing bonds have a greater impact on stock returns than the change in the real debt ratio to the target debt ratio due to issuing equity.
Soonwook Hong and Hyunmin Oh, 2017. A Study on Asymmetric Volatility of Stock Returns: Focusing on the Effects of the Changes in the Capital Structure by Capital Financing Types. International Business Management, 11: 953-959.