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dc.contributor.authorTewari, Manish
dc.date.accessioned2021-09-07T17:31:26Z
dc.date.available2021-09-07T17:31:26Z
dc.date.issued5/17/2013
dc.identifier.citationInternational Business Research; Vol. 6, No. 6; 2013 ISSN 1913-9004 E-ISSN 1913-9012 Published by Canadian Center of Science and Education doi:10.5539/ibr.v6n6p1
dc.identifier.doihttps://doi.org/10.5539/ibr.v6n6p1
dc.identifier.urihttp://hdl.handle.net/20.500.12648/2102
dc.description.abstractThe focus of this paper is to assess the long-term common stock performance of the parent firms that underwent divisional buyout (DBO) and had event risk covenant (ERC) bonds outstanding at the announcement of the DBO. The final sample of 46 parent firms exhibit a common characteristic where all the ERC bonds were redeemed (either called above par or put on the firm at par) or restructured at a higher cost to the firm around DBO announcement date due to the presence of ERCs. ERCs are triggered since the parent firms that divest their assets through a DBO reveal future cash flow volatility, which has potential to lower the value of existing bonds. This refunding of the bonds leads to costly refinancing for the parent firms, which has long-term implications. I find significantly negative cumulative abnormal returns at the issue date of the ERC bonds for these firms due to potential managerial entrenchment and foregone transfer of wealth from bondholders to stockholders. Consistent with the finance literature, I find significantly positive cumulative abnormal returns for parent firms at the announcement of the DBO. These positive short-term returns at the announcement do not translate into long-term positive returns. The common stock of these parent firms significantly underperforms the market over the periods three, four, and five years after the DBO date. This dichotomy can be attributed to the security market overreaction to the announcement of DBO. The long-term underperformance can be attributed to the costly refinancing of the ERC bonds.
dc.subjectEvent Risk Covenants
dc.subjectBonds
dc.subjectDivision Buyout
dc.subjectParent Firm
dc.subjectLong-Term Performance
dc.titleDivision Buyout and Refinancing of Event Risk Covenant Bonds: Evidence from the Long-Term Stock Performance
dc.typearticle
dc.source.journaltitleInternational Business Research
dc.source.volume6
dc.source.issue6
refterms.dateFOA2021-09-07T17:31:26Z
dc.description.institutionSUNY Brockport
dc.source.peerreviewedTRUE
dc.source.statuspublished
dc.description.publicationtitleBusiness-Economics Faculty Publications
dc.contributor.organizationThe College at Brockport
dc.languate.isoen_US


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