The bondholder wealth impact of share repurchases

Reports in the financial press suggest that share repurchases are harmful to bondholders, while empirical studies report mixed evidence on bondholder wealth expropriation due to share repurchases.

Using a unique dataset of monthly actual repurchases (versus occasional repurchase announcements), I analyze the relation between bond returns, stock returns and share repurchases. Across various research settings, the results suggest that share repurchases transfer wealth from bondholders to shareholders. Further analyses show how the effect differs when options are exercised, and how credit ratings are affected by share repurchases.