Larry Y. Dann

Common stock repurchases: An analysis of returns to bondholders and stockholders

Abstract This paper examines the effects of a common stock repurchase on the values of the repurchasing firms common stock, debt and preferred stock, and attempts to identify the dominant factors underlying the observed value changes. The evidence indicates that significant increases in firm values occur within one day of a stock repurchase announcement. These value changes appear to be due principally to an information signal from the repurchasing firm. Common stockholders are the beneficiaries of virtually all of the value increments, but no class of securities examined declines in value as a result of the repurchase.

Convertible debt issuance, capital structure change and financing-related information: Some new evidence☆

This paper provides evidence on the valuation effects of convertible debt issuance. Common stockholders earn significant negative abnormal returns at the initial announcement of a convertible debt offering, and also at the issuance date. In contrast, the average valuation effect on common stock at the announcement of non-convertible debt offerings is only marginally negative, and is zero at issuance. The significant negative average effect on common stock value appears not to be systematically related to either the degree of leverage change induced by the convertible debt issuance or the extent to which the proceeds from issuance are used for new investment or to refinance existing debt. If, as appears likely, the issuance of convertible debt on average increases financial leverage, these results are inconsistent with evidence from other recent studies documenting common stock price effects of the same sign as the change in leverage. The evidence suggests that convertible debt offerings convey unfavorable information about the issuing firms, but the specific nature of such information remains unidentified.

Corporate financial policy and corporate control : A study of defensive adjustments in asset and ownership structure

Abstract This paper presents evidence that stockholder wealth declines on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure. The data also indicate that these corporate restructurings are typically quite large and that many are attempts by managers to create barriers specific to the hostile bidder and /or to consolidate a block of voting securities in the hands of management allies. The evidence suggests that defensive motives (whether beneficial or harmful) influence corporate asset and ownership structure.

Repurchase tender offers and earnings information

Announcements of stock repurchase tender offers are examined as a source of information to the market on the firms future earnings prospects and market risk level. We find positive average earnings surprises and equity systematic risk reductions following tender offers but not, in most instances, preceding them. We find positive stock price reactions to tender offer announcements to be positively correlated with earnings surprises over the concurrent and subsequent two years, and negatively correlated with changes in equity and firm market risk. Finally, stock price reactions to quarterly earnings announcements are more strongly correlated with time-series based earnings surprises in the year prior to the tender offer than during the subsequent year, consistent with tender offer announcements conveying earnings information to the market.

Standstill agreements, privately negotiated stock repurchases, and the market for corporate control

Abstract Standstill agreements are voluntary contracts which limit a substantial stockholders ownership interest in a corporation for a specified number of years. They are often accompanied by repurchase of the substantial stockholders shares at a premium above the market price. Standstills and premium buybacks reduce competition for corporate control and provide differential treatment of large block stockholders. The analysis indicates a statistically significant negative average effect on non-participating stockholder wealth associated with standstill agreements. Negotiated premium repurchases are also associated with negative, but less significant, stockholder returns. The evidence is inconsistent with the hypothesis that these management actions are in the best interests of non-participating stockholders.

Highly leveraged transactions and managerial discretion over investment policy: An overview

Abstract These discussion comments place the evidence by Denis and Denis on leveraged recapitalizations in the broader context of highly leveraged transactions, including going-private transactions, management buyouts, and so-called reverse LBOs. The evidence indicates that highly levered companies that remain publicly-owned experience improvements in operating performance and reductions in capital expenditures following the leverage boost comparable to those of companies that have gone private. Despite increases in operating income, however, the obligations of the additional debt taken on are sufficient to preclude management from internally financing capital expenditures at previous levels. There is evidence consistent with the claim that this limitation benefits stockholders.