An examination of the wealth effects of share repurchases on bondholders

While reports in the financial press suggest that share repurchases are harmful to bondholders, academic studies report conflicting empirical evidence. Using newly available daily bond data (versus monthly data used in existing studies) and modern methods of analysis, we find no evidence of bondholder wealth expropriation. Merton (1974) model estimates of changes in the value of debt during share repurchases and changes in credit ratings following share repurchases produce no evidence of bondholder wealth expropriation. Overall, we find no evidence that repurchases measurably harm bondholders, suggesting concerns raised in the financial press are unfounded.