Journal of Financial Economics Vol. 100 No. 1 2011
Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation
open access
Abstract
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.
- DOI
- 10.1016/j.jfineco.2010.10.016
- Volume
- 100
- Issue
- 1
- Pages
- 113-129
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref