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Shareholder gains from callable‐bond refundings
Author(s) -
Emery Douglas R.,
Lewellen Wilbur G.
Publication year - 1990
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090110108
Subject(s) - callable bond , bond , shareholder , obligation , debt , maturity (psychological) , business , actuarial science , economics , value (mathematics) , monetary economics , finance , mathematics , statistics , corporate governance , political science , law , psychology , developmental psychology
A re‐examination indicates that current procedures for measuring the benefit realized by shareholders when a firm calls and refunds an outstanding debt obligation are mis‐specified. The key to a proper measurement is found to lie in the identification of the extinguished remaining‐time‐to‐maturity value of the exercised option on the called debt. A simple procedure for assessing that value is provided and incorporated into a corrected measure of the gains from a callable‐bond refunding.