An examination of the wealth effects of share repurchases on bondholders |
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| Affiliation: | 1. Saint Louis University, United States of America;2. University of Nevada, Reno, United States of America;3. University of Wisconsin, Milwaukee, United States of America;1. Adam Smith Business School, University of Glasgow, Gilbert Scott Building, Glasgow G12 8QQ, UK;2. Higher School of Economics, National Research University, 38 Studencheskaya St., Perm, Russia;3. Department of Economics, University of Cyprus, 1678 Nicosia, Cyprus;1. Surrey Business School, University of Surrey, Guildford GU2 7XH, UK;2. Warwick Business School, University of Warwick, Coventry CV4 7AL, UK |
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| Abstract: | While reports in the financial press suggest that share repurchases are harmful to bondholders, academic studies report conflicting empirical evidence. Using newly available daily bond data (versus monthly data used in existing studies) and modern methods of analysis, we find no evidence of bondholder wealth expropriation. Merton (1974) model estimates of changes in the value of debt during share repurchases and changes in credit ratings following share repurchases produce no evidence of bondholder wealth expropriation. Overall, we find no evidence that repurchases measurably harm bondholders, suggesting concerns raised in the financial press are unfounded. |
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