Exchangeable debt is convertible into the common stock of a target firm in which the issuing firm has an ownership position. It signifies a potential change in the issuing firm's asset composition through the divestiture of the ownership stake in the target firm. We find that announcements of exchangeable debt offers are associated with insignificant abnormal returns for the shareholders of issuing firms. The target firm's share price declines, however, when an exchangeable debt offer is announced. This result is consistent with the offer's potential to reduce the ownership concentration of the target firm's common stock.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Strategy and Management