Did the '08 financial crisis change the Norwegian bond market?

Abstract

Since the beginning of the 21th century, there has been a great development in the Norwegian bond market. It has gone from a small market with few, usually government controlled, issuers, to a market characterized by large issue volumes of high yield corporate bonds. When a market experiences higher activity, the efficiency in the market should increase. There is a casual relationship between the issuance of new debt and the equity value of the firm. In this thesis we are investigating whether the financial crisis in 2008 had an impact on the valuation effect of a new bond issue. To this end we conduct an event study looking at firms listed on the Oslo Stock Exchange, comparing the equity market reaction to new bond issues before and after the crisis. We find that before the crisis new bond issues lead to a significant negative equity response, while after the crisis a new bond issue had no significant effect. This suggest that the Norwegian bond market has become more efficient.