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Information Effects Associated with Debt‐for‐Equity and Equity‐for‐Debt Exchange Offers
Author(s) -
CORNETT MARCIA MILLON,
TRAVLOS NICKOLAOS G.
Publication year - 1989
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1989.tb05065.x
Subject(s) - monetary economics , economics , debt , equity (law) , capital structure , stock price , equity value , financial economics , stock exchange , external debt , debt levels and flows , finance , political science , law , paleontology , series (stratigraphy) , biology
This study investigates the information effect caused by a firm's change in capital structure via debt‐for‐equity and equity‐for‐debt exchange offers. The evidence suggests that the former transactions lead to abnormal stock price increases, while the latter lead to abnormal stock price decreases. In addition, findings based on analysis of bond returns and cross‐sectional regressions do not lend support to the wealth‐transfer‐ and tax‐effect hypotheses, but they are consistent with the information‐effect hypothesis.