sajm






Investor Reactions to Sovereign Debt Restructuring: Empirical Evidence from Sri Lanka

R M R P Wijesooriya1, S D L Kongahawatte2, T M S Peiris3 and B T K Chathuranga4

DOI: https://10.62206/sajm.31.4.2024.7-30

PUBLISHED :13 FEB 2025

Abstract

This study provides new evidence on how the investors in frontier financial markets react to restructuring of government debt in light of the 2023 government debt restructuring in Sri lanka. Utilizing the standard event study methodology, we analyze investor reactions in the Colombo Stock Exchange (CSE), using different estimation windows and asset pricing models. Our final sample included 265 stocks with return data for 261 trading days starting from 240 days prior to the debt restructuring announcement. Data on stock prices, and other market indicators were sourced from Refinitiv Eikon. Results indicate a significant positive response from the investors to the debt restructuring announcement with no apparent leakage of news on debt restructuring decisions. Additionally, our findings reveal that private investors in the financial industry and high market-cap companies exhibit a more optimistic response to debt restructuring announcement. This study contributes novel insights into investor responses to the announcement of government debt restructuring in a frontier market.

Key Words

Colombo Stock Exchange, Debt Restructuring, Standard Event Study, Frontier Market, Investor Reactions

Author Biography

R M R P Wijesooriya1
Lecturer, Department of Finance, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, Sri Lanka; and is the corresponding author. E-mail: ruwangawijesooriya@sjp.ac.lkThis e-mail address is being protected from spambots. You need JavaScript enabled to view it

S D L Kongahawatte2
Senior Lecturer, Department of Finance, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, Sri Lanka. E-mail: kongahawatte@sjp.ac.lkThis e-mail address is being protected from spambots. You need JavaScript enabled to view it

T M S Peiris3
Lecturer, Department of Finance, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, Sri Lanka. E-mail: miyuki@sjp.ac.lkThis e-mail address is being protected from spambots. You need JavaScript enabled to view it

B T K Chathuranga4
Lecturer, Department of Marketing Management, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, Sri Lanka. E-mail: btk@sjp.ac.lkThis e-mail address is being protected from spambots. You need JavaScript enabled to view it

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