Abstract
Over recent years, a substantial fraction of US convertible bond issues have been combined with a stock repurchase. This paper explores the motivations for these combined transactions. We argue that convertible debt issuers repurchase their stock to facilitate arbitrage-related short selling. In line with this prediction, we show that convertibles combined with a stock repurchase are associated with lower offering discounts, lower stock price pressure, higher expected hedging demand, and lower issue-date short selling than uncombined issues. We also find that convertible arbitrage strategies explain both the size and the speed of execution of the stock repurchases. (C) 2010 Elsevier B.V. All rights reserved.
Original language | English |
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Pages (from-to) | 113-129 |
Number of pages | 17 |
Journal | Journal of Financial Economics |
Volume | 100 |
Issue number | 1 |
DOIs | |
Publication status | Published - Apr-2011 |
Keywords
- Convertible debt
- Convertible arbitrage
- Short selling
- Stock repurchase
- MARKET SHARE REPURCHASES
- ACCRUAL ESTIMATION ERRORS
- TENDER OFFERS
- STANDARD-AND-POOR-500 LIST
- FINANCING DECISIONS
- PRIVATE INFORMATION
- PRICE PRESSURE
- DUTCH-AUCTION
- SHORT SALES
- DEBT