The Effects of Capital Structure Change on Security Prices: A Study of Exchange Offers

45 Pages Posted: 26 Jan 2010  

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Date Written: March 2, 1980

Abstract

This study examines the impact of approximately pure capital structure change announcements on security prices (specifically on common stock, straight preferred stock, convertible preferred stock, straight debt and convertible debt). Statistically significant price adjustments in firms’ common stock, preferred stock and debt related to these announcements are documented and alternative causes for these price changes are examined. The evidence is consistent with both corporate, tax and wealth redistribution effects. There is also evidence that firms make decisions which do not maximize stockholder wealth. In addition, a new approach to testing the significance of public announcements on security returns is presented.

Keywords: exchange offer, capital structure change, common stock, preferred stock, debt, announcement returns, event study methodology, protective covenants, wealth expropriation, recapitalization

JEL Classification: G32, G34, G14

Suggested Citation

Masulis, Ronald W., The Effects of Capital Structure Change on Security Prices: A Study of Exchange Offers (March 2, 1980). Journal of Financial Economics (JFE), Vol. 8, No. 2, June 1980. Available at SSRN: https://ssrn.com/abstract=1542183

Ronald W. Masulis (Contact Author)

University of New South Wales - Australian School of Business ( email )

Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

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1 Business Link
Singapore, 117592
Singapore

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