Do Fund Sources of Stock Repurchase Matter? – A Credit Risk Perspective
Date Issued
2008
Date
2008
Author(s)
Chang, Chin-chun
Abstract
We employ a credit innovation proxy to revisit the signaling and wealth transfer effects around stock repurchase announcements documented in prior researches. Using panel data from 1991 to 2006, we find evidences that positive signaling effect dominates wealth transferring one, which means, overall speaking, stock repurchases do not expropriate bondholders’ wealth. The total benefits from stock repurchase are positively related to the size of repurchase. Besides, firms finance the repurchases with debt, comparing with no debt, exhibit greater positive signals, while the effect is abated by higher default probabilities due to a raise in debt level.
Subjects
Stock repurchase
Signaling effect
Wealth transfer effect
Credit risk
Type
thesis
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