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EXCHANGEABLE DEBT CALLS AND SECURITY RETURNS
Author(s) -
Ghosh Chinmoy,
Varma Raj,
Woolridge J. Randall
Publication year - 1996
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1996.tb00405.x
Subject(s) - divestment , shareholder , business , stock (firearms) , leverage (statistics) , monetary economics , capital structure , debt , convertible , common stock , convertible bond , leveraged buyout , capital call , finance , financial economics , corporate governance , economics , microeconomics , profit (economics) , financial capital , private equity , mechanical engineering , paleontology , context (archaeology) , individual capital , structural engineering , machine learning , computer science , engineering , biology
Exchangeable calls are not convertible into the calling firm's common stock but into the common stock of a target firm in which the calling firm has an ownership position. In addition to reducing leverage, exchangeables change the asset composition of the calling firm through the divestiture of the calling firm's ownership stake in the target firm. In contrast to the evidence on convertible calls, our findings indicate that announcements of exchangeable debt calls are not associated with an abnormal capital loss for the calling firm shareholders. For target firms, announcements of exchangeable calls reduce shareholder wealth. A lower probability of takeover resulting from diffusion of ownership concentration of the target firm's common stock may contribute to this result.