Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation

Abe de Jong, Marie Dutordoir and Patrick Verwijmeren

Journal of Financial Economics, 2011, vol. 100, issue 1, 113-129

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.

Keywords: Convertible; debt; Convertible; arbitrage; Short; selling; Stock; repurchase (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:100:y:2011:i:1:p:113-129

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