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Bondholder Wealth Effects in Mergers and Acquisitions: New Evidence from the 1980s and 1990s
Author(s) -
Billett Matthew T.,
King TaoHsien Dolly,
Mauer David C.
Publication year - 2004
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.1540-6261.2004.00628.x
Subject(s) - leverage (statistics) , bond , mergers and acquisitions , monetary economics , maturity (psychological) , business , economics , contrast (vision) , financial economics , financial system , finance , computer science , psychology , developmental psychology , machine learning , artificial intelligence
We examine the wealth effects of mergers and acquisitions on target and acquiring firm bondholders in the 1980s and 1990s. Consistent with a coinsurance effect, below investment grade target bonds earn significantly positive announcement period returns. By contrast, acquiring firm bonds earn negative announcement period returns. Additionally, target bonds have significantly larger returns when the target's rating is below the acquirer's, when the combination is anticipated to decrease target risk or leverage, and when the target's maturity is shorter than the acquirer's. Finally, we find that target and acquirer announcement period bond returns are significantly larger in the 1990s.