Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation
Over recent years, a substantial fraction of US convertible bond issues have been combined with a stock repurchase. This paper explores the motivations for these combined transactions. We argue that convertible debt issuers repurchase their stock to facilitate arbitrage-related short selling. In line with this prediction, we show that convertibles combined with a stock repurchase are associated with lower offering discounts, lower stock price pressure, higher expected hedging demand, and lower issue-date short selling than uncombined issues. We also find that convertible arbitrage strategies explain both the size and the speed of execution of the stock repurchases.
Year of publication: |
2011
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Authors: | de Jong, Abe ; Dutordoir, Marie ; Verwijmeren, Patrick |
Published in: |
Journal of Financial Economics. - Elsevier, ISSN 0304-405X. - Vol. 100.2011, 1, p. 113-129
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Publisher: |
Elsevier |
Keywords: | Convertible debt Convertible arbitrage Short selling Stock repurchase |
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