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Information Effects Associated with Debt-for-Equity and Equity-for-Debt Exchange Offers

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  • Millon-Cornett, Marcia H
  • Travlos, Nickolaos G

Abstract

This study investigates the information effect caused by a firm's change in capital structure via debt-for-equity and equity-for-debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross-sectional regressions do not lend support to the wealth transfer and tax effect hypotheses, but they are consistent with the information effect hypothesis. Copyright 1989 by American Finance Association.

Suggested Citation

  • Millon-Cornett, Marcia H & Travlos, Nickolaos G, 1989. " Information Effects Associated with Debt-for-Equity and Equity-for-Debt Exchange Offers," Journal of Finance, American Finance Association, vol. 44(2), pages 451-468, June.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:2:p:451-68
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    Cited by:

    1. Maul, D. & Schiereck, D., 2016. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Ruey S. Tsay & Yi-Mien Lin & Hsiao-Wen Wang, 2009. "Residual income, non-earnings information, and information content," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(6), pages 487-511.
    3. repec:eee:finana:v:52:y:2017:i:c:p:203-212 is not listed on IDEAS
    4. Robert M. Hull & George E. Pinches, 1995. "Firm Size and the Information Content of Over-the-Counter Common Stock Offerings," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 4(1), pages 31-55, Spring.
    5. Robert Hull & Sungkyu Kwak & Rosemary Walker, 2012. "Explanation for market response to seasoned equity offerings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(3), pages 634-661, July.
    6. Luc Renneboog & Peter G. Szilagyi, 2008. "Corporate Restructuring and Bondholder Wealth," European Financial Management, European Financial Management Association, vol. 14(4), pages 792-819.
    7. Unyong Pyo & Yong Shin & Howard Thompson, 2015. "Reducing agency conflicts with target debt ratios," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(3), pages 431-453, July.
    8. Lei, Zicheng & Zhang, Chendi, 2016. "Leveraged buybacks," Journal of Corporate Finance, Elsevier, vol. 39(C), pages 242-262.
    9. Shenoy, Catherine & Koch, Paul D., 1996. "The firm's leverage-cash flow relationship," Journal of Empirical Finance, Elsevier, vol. 2(4), pages 307-331, February.
    10. Imbierowicz, Björn & Wahrenburg, Mark, 2013. "Wealth transfer effects between stockholders and bondholders," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(1), pages 23-43.
    11. Szilagyi, P.G., 2007. "Corporate governance and the agency costs of debt and outside equity," Other publications TiSEM 9520d40a-224f-43a8-9bf9-b, Tilburg University, School of Economics and Management.

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