Leverage-reducing exchange offers and bondholder-stockholder wealth transfers: A re-evaluation
AbstractThis paper re-examines the intersecurity wealth effects of leverage-reducing exchange offer (LREO) announcements. We show that previous studies may have been confounded by not distinguishing between two types of LREOs - swaps and exchange offers - and by the limited availability of bond data to properly test the wealth transfer effect. Contrary to extant research, we find evidence supportive of the wealth transfer hypothesis in the case of exchange offers but not swap offers. More detailed analysis of LREO exchange offers reveals a systematic relationship between bond returns and certain attributes that capture managerial inclination to accede to bondholder interests, consistent with a wealth transfer effect.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 19 (2010)
Issue (Month): 1 (January)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Exchange offers Wealth transfer Capital structure;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jay C. Hartzell & Laura T. Starks, 2003. "Institutional Investors and Executive Compensation," Journal of Finance, American Finance Association, vol. 58(6), pages 2351-2374, December.
- Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
- Thomas E. Copeland & Won Heum Lee, 1991. "Exchange Offers and Stock Swaps - New Evidence," Financial Management, Financial Management Association, vol. 20(3), Fall.
- Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
- Peavy, John W, III & Scott, Jonathan A, 1985. "The Effect of Stock for Debt Swaps on Security Returns," The Financial Review, Eastern Finance Association, vol. 20(4), pages 303-27, November.
- Song, Moon H. & Walkling, Ralph A., 1993. "The Impact of Managerial Ownership on Acquisition Attempts and Target Shareholder Wealth," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(04), pages 439-457, December.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Hayne E. Leland and David H. Pyle., 1976.
"Informational Asymmetries, Financial Structure, and Financial Intermediation,"
Research Program in Finance Working Papers
41, University of California at Berkeley.
- Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
- Israel, Ronen & Ofer, Aharon R. & Siegel, Daniel R., 1989. "The information content of equity-for-debt swaps : An investigation of analyst forecasts of firm cash flows," Journal of Financial Economics, Elsevier, vol. 25(2), pages 349-370, December.
- Masulis, Ronald W, 1983. " The Impact of Capital Structure Change on Firm Value: Some Estimates," Journal of Finance, American Finance Association, vol. 38(1), pages 107-26, March.
- McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
- Wara, A. & Welch, I., 1990.
"Bondholder Losses In Leveraged Buyouts,"
fb-_90-04, Columbia - Graduate School of Business.
- Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
- Masulis, Ronald W., 1980. "The effects of capital structure change on security prices : A study of exchange offers," Journal of Financial Economics, Elsevier, vol. 8(2), pages 139-178, June.
- Chenchuramaiah T. Bathala & Kenneth P. Moon & Ramesh P. Rao, 1994. "Managerial Ownership, Debt Policy, and the Impact of Institutional Holdings: An Agency Perspective," Financial Management, Financial Management Association, vol. 23(3), Fall.
- Jayaraman, Narayanan & Shastri, Kuldeep, 1988. "The Valuation Impacts of Specially Designated Dividends," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(03), pages 301-312, September.
- William F. Maxwell & Ramesh P. Rao, 2003. "Do Spin-offs Expropriate Wealth from Bondholders?," Journal of Finance, American Finance Association, vol. 58(5), pages 2087-2108, October.
- Tod Perry & Anil Shivdasani, 2005. "Do Boards Affect Performance? Evidence from Corporate Restructuring," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1403-1432, July.
- Shah, Kshitij, 1994. "The nature of information conveyed by pure capital structure changes," Journal of Financial Economics, Elsevier, vol. 36(1), pages 89-126, August.
- William F. Maxwell & Clifford P. Stephens, 2003. "The Wealth Effects of Repurchases on Bondholders," Journal of Finance, American Finance Association, vol. 58(2), pages 895-920, 04.
- Isagawa, Nobuyuki, 2006. "Lender's risk incentive and debt concession," International Review of Economics & Finance, Elsevier, vol. 15(2), pages 141-150.
- Lie, Erik & Lie, Heidi J. & McConnell, John J., 2001. "Debt-reducing exchange offers," Journal of Corporate Finance, Elsevier, vol. 7(2), pages 179-207, June.
- Sarig, Oded & Warga, Arthur, 1989. " Some Empirical Estimates of the Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 44(5), pages 1351-60, December.
- Chang, Chih-Hsiang & Chan, Kam C., 2011. "Investment banks' stock ratings, call warrant issuance, and responses from heterogeneous investors: Evidence from Taiwan," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 733-743, October.
- Caton, Gary L. & Chan, Justin S.P. & Goh, Jeremy & Yang, Sheng-Yung, 2011. "An analysis of Japanese earnings forecast revisions with application to seasoned equity offerings," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 376-387, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.