Wealth Transfer Effects between Stockholders and Bondholders

51 Pages Posted: 17 Mar 2011 Last revised: 3 Mar 2013

See all articles by Björn Imbierowicz

Björn Imbierowicz

Deutsche Bundesbank - Research Centre

Mark Wahrenburg

Faculty of Economics and Business Administration

Date Written: January 21, 2013

Abstract

Prior research has addressed the question of whether certain events cause a transfer of wealth between stockholders and bondholders but does not control for the events’ impacts on firms’ credit risk. This may explain why many studies fail to identify wealth transfers. By employing announcements of reductions in credit quality, we find that two types of events cause wealth transfers from bondholders to stockholders. These are unexpected increases in firm leverage, and the firms’ contemporaneous involvement in M&A. Both cases reveal positive excess stock returns and CDS premiums, which exhibit a significantly positive correlation.

Keywords: Credit Default Swaps, Credit Ratings, Credit Rating Rationale, Event Study, M&A, Public Information, Surprise, Wealth Transfers

JEL Classification: G14, G24, G32, G34

Suggested Citation

Imbierowicz, Björn and Wahrenburg, Mark, Wealth Transfer Effects between Stockholders and Bondholders (January 21, 2013). The Quarterly Review of Economics and Finance 53 (2013) 23– 43. Available at SSRN: https://ssrn.com/abstract=1786605 or http://dx.doi.org/10.2139/ssrn.1786605

Björn Imbierowicz (Contact Author)

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Mark Wahrenburg

Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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