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.
Original language | English |
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Pages (from-to) | 113-129 |
Number of pages | 17 |
Journal | Journal of Financial Economics |
Volume | 100 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2011 |
Research programs
- RSM F&A