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BOND MARKET REACTION TO STOCK REPURCHASES: IS THERE A WEALTH TRANSFER EFFECT?
Author(s) -
Nishikawa Takeshi,
Prevost Andrew K.,
Rao Ramesh P.
Publication year - 2011
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2011.01300.x
Subject(s) - shareholder , event study , bond , stock (firearms) , abnormal return , transfer (computing) , monetary economics , wealth effect , stock market , bond market , business , bond valuation , economics , stock price , corporate bond , sample (material) , financial economics , finance , stock exchange , corporate governance , context (archaeology) , chemistry , horse , computer science , engineering , biology , paleontology , chromatography , series (stratigraphy) , parallel computing , mechanical engineering , monetary policy
We reexamine the bondholder wealth impact of stock repurchases with a focus on the wealth transfer effect. We do not detect any transfer of wealth from bondholders to shareholders surrounding open market stock repurchases. For the overall sample (1994–2002), using daily data we document a significant decrease in bond yields surrounding repurchase announcements. Subsamples classified by attributes that capture wealth transfer propensity also do not reveal evidence consistent with a wealth transfer effect. Correlation analysis between bond and stockholder wealth effects similarly is not supportive of a wealth transfer effect. Contrary to the wealth transfer hypothesis, we document a greater proportion of bond rating upgrades than downgrades in the three months following a repurchase announcement. Our results are robust to alternate bond price data and event return methodology.