Wealth transfer effects between stockholders and bondholders☆

摘要

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.