The market timing of corporate bond reopenings

摘要

The objective of this paper is to test whether companies use corporate bond reopenings to exploit overvalued debt. Reopenings represent new debt offerings, which are characterized through identical configurations as an already outstanding bond, but with a market-adjusted price. Their advantage lies with the fact that fewer preparations are required compared to a new regular offering. For a set of European companies our results suggest that stockholders respond less positively to the announcements of reopenings than to regular offerings. This effect is stronger, the higher the pre-issue bond price run-up, and the stock price reaction is directly linked to the change in the firm's debt value. Additionally, the prices of the reopened bonds drop on the announcement day. Therefore, in line with the window of opportunity theory, the firm's management appears to use reopenings as a fast and inexpensive way to raise debt capital, which leads stockholders and bondholders to suspect an overvaluation and therefore to adjust their price expectations. The analysis also reveals that the redistribution of wealth from bondholders to stockholders is a major determinant for the observed price changes.