The Decision between Tender Offers and Open Market Bond Repurchase: Do Bond Issuers Time the Market?

Abstract:     
We analyze the observed increase at the height of the two recent capital market crashes, the dot.com and the housing bubble bursts, in the number of firms repurchasing their bonds in the open market, a stealthy method of bond repurchase and the decrease in the number of firms using a tender offer, a transparent method of repurchase, and provide evidence consistent with issuers using their superior information to time the bond market. Specifically, analyses suggest that the increase in the likelihood of issuers to repurchase bonds in the open market rather than via a tender occurs when the information environment deteriorates, that the likelihood of repurchase in the open market is mitigated in firms with lower information asymmetries, and that issuers generate economic benefits from choosing to repurchase in the open market rather than via tenders.

Number of Pages in PDF File: 46

Keywords: Bond Repurchase, Market Timing

JEL Classification: G32

working papers series