The information contents of senior offerings that reduce junior securities

This study examines 196 pure leverage increases consisting of senior offerings that reduce junior securities. We offer the following contributions not previously discovered by the senior-for-junior research. First, we show that firms for which less information exists have positive announcement period stock returns that are significantly greater than firms for which more information exists. Second, we find that the signaling effects associated with the announcement of a premium and with adverse selection exercise a significant impact on stock returns. Last, we show that the decrease in systematic risk, which accompanies senior-forjunior transactions, occurs almost solely for firms for which less information exists.