This study examines the effect of debt IPO announcements on shareholders’ wealth in an emerging financial market, India, during 1989-2018. Despite the debt market forming an important component of the Indian financial system, there is little empirical evidence related to its implications on different segments of the market. One such unexplored segment is the impact of debt Initial Public Offerings (IPO) on the wealth of shareholders. This paper attempts to answer this important question. Event study methodology has been employed to determine any aberrant change in the stock price following a debt IPO issue. The evidence suggests that debt IPO announcements, on an overall basis, are linked with favourable stock market reaction although the effect is significant only during the post-event period. The findings of the study are aligned with ‘pecking order theory’ as well as ‘signalling theory’, wherein the issue of debt is preferred over the issue of equity and is considered as ‘good news’. Regression analysis reveals that manufacturing firms and larger firms experience higher positive abnormal returns. Issue amount is correlated negatively to stock returns; the price to book value (P/B) ratio also indicates a significant negative impact during the post-event period. Leverage, on average, seems to have a negative effect (albeit insignificant). Profitability, on an overall basis, has a positive impact on the stock returns.

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Keywords: Debt IPO, Event Study Methodology, Shareholders’ Wealth.