Equity for Debt Exchanges and Stockholder Wealth

Rogers, Ronald C.; Owers, James E.

doi:10.2307/3665055

Cited by 19 publications

(6 citation statements)

References 7 publications

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“…192% (or .596% per day) upon the announcement of a stock-for-debt swap.12 Rogers and Owers [17] also find a negative reaction to the swap announcement. Whereas the prices of the stocks in the sample increased on average .060% per day during the comparison period, they fell on average .536% per day during the announcement period.…”

Section: Empirical Results For the Full Samplementioning

confidence: 97%

Stock-for-Debt Swaps and Shareholder Returns

Finnerty¹

1985

Financial Management

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Section: Empirical Results For the Full Samplementioning

confidence: 97%

Stock-for-Debt Swaps and Shareholder Returns

Finnerty¹

1985

Financial Management

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“…2°Eckbo 1986Partch 1986. 21Rogers andOwers 1985;Peavy and Scott 1985;Finnerty 1985. rized in Panel H. The two-day losses range from 7.7 percent (preferred for debt) to 1.1 percent (common for debt).…”

Section: Evidence From Financial Transactionsmentioning

confidence: 99%

The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy

Jensen

2003

SSRN Journal

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“…Studies of noncash offerings include exchange offers (Masulis, 1980;Masulis, 1983;Pinegar and Lease, 1986) and private swaps (Finnerty, 1985;Peavy and Scott, 1985;Rogers and Owers, 1985). More recent work (Copeland and Lee, 1991;Cornett and Travlos, 1989) is on both exchange offers and swaps.…”

Section: A Stock Offering Findingsmentioning

confidence: 99%

Bank Debt Reduction Announcements and Negative Signaling

Hull¹,

Moellenberndt²

1994

Financial Management

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We examine 242 NYSE/AMEX and OTC common stock offerings that reduce bank debt and 254 that retire nonbank debt. We discover that bank debt reductions are associated with negative announcement period stock returns that are more than twice the magnitude of the negative returns found for nonbank debt reductions. The significant difference in returns indicate bank debt reductions transmits negative information beyond that previously cited in the stock offering literature. Regression tests show that the explanatory variable representing bank debt signaling models best explains stock returns.█ Bankers are parties to information about a firm's financial condition through their special relationship as lenders. This premise is the basis for the predictions of bank debt signaling models, which posit that bank debt issuance announcements convey positive news about a firm. Empirical research on debt offering announcements that raise cash for multi-corporate purposes supports this claim. The research documents statistically significant positive stock price reactions to bank debt announcements and negative reactions to nonbank debt announcements.If bank debt issuance announcements signal more favorable news than nonbank debt announcements, it follows that bank debt reduction announcements should signal more negative news than nonbank debt reduction announcements. Market participants will view bank debt reduction announcements as the result of decisions made by bankers acting upon unfavorable inside information.Our study extends prior research on equity offerings that reduce debt. We analyze 242 stock offering announcements that reduce bank debt, and 254 announcements that retire nonbank debt. Consistent with the predictions of bank debt signaling models, returns for bank debt reductions are more negative than returns for nonbank debt reductions, and the differences in returns are statistically significant. I. Competing Capital Structure ModelsEvent study research finds a significant negative stock valuation effect for equity-for-debt transactions such as exchange offers, private swaps, and stock offerings that raise cash to reduce debt. These findings are consistent with capital structure models that predict negative tax, agency, and signaling effects.Tax models, rooted in Modigliani and Miller (1963), hypothesize negative stock price behavior from lost tax shields when firms undergo stock-for-debt transactions. Agency models that deal with risk shifting, such as the intrasecurity wealth transfer model of Galai and Masulis (1976), also hypothesize negative stock price behavior. The cash flow payments to debtholders become less risky, while payments to stockholders become more risky. This causes wealth transfers from stockholders to debtholders.Asymmetrical information models (e.g., Leland and Pyle (1977) and Ross (1977)) predict that stock-for-debt transactions signal negative news. Leland and Pyle connect negative signaling to decreases in the percentage of inside ownership caused when insiders do not participate in the stoc...

show abstract

Equity for Debt Exchanges and Stockholder Wealth

Cited by 19 publications

References 7 publications

Stock-for-Debt Swaps and Shareholder Returns

Stock-for-Debt Swaps and Shareholder Returns

The Free Cash Flow Theory of Takeovers: A Financial Perspective on Mergers and Acquisitions and the Economy

Bank Debt Reduction Announcements and Negative Signaling

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