Managerial market timing under credit risk: How do timed buybacks and stock issuances influence the value of long-term shareholders?

Jan Vogt

Global Finance Journal, 2023, vol. 55, issue C

Abstract: Using discounted cash flow valuation together with a Merton-style credit risk model this paper quantifies the effects of credit risk on timed equity buybacks and issuances. Assumed managers act in best interest of their long-term shareholders and do have superior information, the potential value gain for long-term shareholders out of market timing with and without credit risk is evaluated. As demonstrated in a real-world example, credit risk is important. Ignoring credit risk results in value gains of buybacks motivated by smaller (larger) mispricing levels being underestimated (overestimated), while value gains of issuances driven by lower (larger) mispricings are overestimated (underestimated). These effects are stronger for firms with higher debt levels.

Keywords: Market timing; Capital structure; Valuation; Share issuance; Share buybacks; Credit risk (search for similar items in EconPapers)
JEL-codes: G12 G14 G30 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1044028323000029
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:55:y:2023:i:c:s1044028323000029

DOI: 10.1016/j.gfj.2023.100807

Access Statistics for this article

Global Finance Journal is currently edited by Manuchehr Shahrokhi

More articles in Global Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().