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The Wealth Effects of Repurchases on Bondholders


  • William F. Maxwell

    (Eller College of Business and Public Administration, University of Arizona)

  • Clifford P. Stephens

    (Ourso College of Business, Louisiana State University)


Prior research has documented positive abnormal stock returns around the announcements of repurchase programs; several explanations of these returns have been suggested, including signaling, free cash flow, and wealth redistributions. This study analyzes abnormal stock, bond, and firm returns around repurchase announcements to examine these hypotheses. We find evidence consistent with both signaling and wealth redistribution. The loss to bondholders is a function of the size of the repurchase, and the risk of the firm's debt. We also find that bond ratings are twice as likely to be downgraded as upgraded after the announcement of the repurchase program. Copyright (c) 2003 by the American Finance Association.

Suggested Citation

  • 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, April.
  • Handle: RePEc:bla:jfinan:v:58:y:2003:i:2:p:895-920

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