The stock market reaction to equity and debt financing announcements on the Shanghai and Shenzhen A stock exchanges

Abstract

The purpose of this study was to analyze the stock market reaction of financing announcements on the share price of listed companies. Since equity and debt financing have become a useful tool for listed companies in China to refinance, this event study analyzes samples from the Shanghai and Shenzhen Stock markets. This paper performs an empirical study on the listed companies that issued new shares to eliminate the effect if any of their short-term price performance. It also shows a significantly positive announcement effect, from a week before the announcement time. The stock market price of cumulative average excess yield is 0.720%, while the day before the announcement to the day's cumulative the average excess return is 1.766%. Practical implications of the findings and directions for future research are discussed.