Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
960205 | Journal of Financial Economics | 2011 | 17 Pages |
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.
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Authors
Abe de Jong, Marie Dutordoir, Patrick Verwijmeren,