Stock price reactions to capital structure changes in Chilean firms: Examining the effects of ownership structure, growth opportunities and leverage

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Jorge A. Muñoz Mendoza
Sandra M. Sepúlveda Yelpo
Carmen L. Veloso Ramos


Abnormal returns, Debt, Capital structure, Wealth expropriation


We analyzed the effects of ownership structure, capital structure and growth opportunities on stock price reactions when companies issued debt or equity.
Our results, based on event study methodology and IV regressions from a sample of 70 Chilean firms, indicate that controlling shareholder ownership has a negative effect on stock price reactions for debt issuances and a positive effect for equity issuance. These results indicate that debt issuances are a substitute for majority shareholder monitoring, and that equity issuances are associated with superior corporate performance. Equity issuances are a means for expropriating wealth from non-controlling shareholders. Debt and growth opportunities have a non-linear effect.


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