Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation

Abe de Jong, MDRP (Marie) Dutordoir, Patrick Verwijmeren

Research output: Contribution to journalArticleAcademicpeer-review

34 Citations (Scopus)

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 languageEnglish
Pages (from-to)113-129
Number of pages17
JournalJournal of Financial Economics
Volume100
Issue number1
DOIs
Publication statusPublished - 2011

Fingerprint

Dive into the research topics of 'Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation'. Together they form a unique fingerprint.

Cite this