Journal of Corporate Finance Vol. 7 No. 2 2001
Debt-reducing exchange offers
Abstract
Announcements of debt-reducing exchange offers are associated with a negative average stock price reaction. We address two questions: Why do firms undertake debt-reducing exchange offers? And, what is the information conveyed by such offers? The answers are interrelated: Debt-reducing exchange offers are undertaken by financially weak firms in an effort to stave off further financial distress and, thereby, preserve value for shareholders. A successfully completed exchange offer significantly reduces the likelihood that a firm will enter Chapter 11. Announcements of debt-reducing exchange offers apparently contain two pieces of information: (1) the firm is financially weaker than would have been apparent from other publicly available information, and (2) management is attempting to preserve value for shareholders.
- DOI
- 10.1016/s0929-1199(01)00019-0
- Volume
- 7
- Issue
- 2
- Pages
- 179-207
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref