Journal of Accounting and Economics Vol. 13 No. 1 1990

Insubstance defeasances

John R. M. Hand¹; Patricia J. Hughes²; Stephan E. Sefcik^3,4

¹ University of Chicago · ² University of Southern California · ³ University of Washington · ⁴ University of Washington Applied Physics Laboratory

Abstract

This paper examines the bond and stock price reactions to the announcement of insubstance defeasances, and the motivations for the transaction. We find a reliably positive bond price reaction and a reliably negative stock price reaction. However, the bond price reaction is much less than would be predicted had the defeased bonds been made riskless. We find evidence suggesting that some firms defease to window-dress their earnings, some defease to avoid restrictions in bond covenants, and some defease as a use for excess cash on hand.

DOI

10.1016/0165-4101(90)90067-e

Volume

13

Issue

1

Pages

47-89

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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