BONDHOLDER WEALTH EFFECTS FROM DIVIDEND CHANGES

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Abstract

Bhagat and Romano (2002a, 2002b) document the importance of event study analysis of equity returns in corporate governance. We extend their analysis with the argument that analysis of bond returns around important corporate events can provide additional important information. Such information is particularly important in the current active public discussions over corporate governance. We provide an example of event study analysis of bond returns examining the impact of large dividend changes on both stockholders and bondholders in an effort to differentiate between the information content (transparency) and possible wealth transfers (theft) around dividends. Our study replicates earlier studies on investment grade bonds with ambiguous results using a sample of noninvestment grade bonds. Our results suggest that for ordinary dividend changes, wealth expropriation is a significant explanation in the gain to stockholders.

Keywords: Bondholders, Corporate Governance, Dividends, Information Asymmetry, Wealth Expropriation

How to cite this paper: Klock, M. S., & Gleason, K. I. (2007). Bondholder wealth effects from dividend changes. Corporate Ownership & Control, 4(3), 42-52. https://doi.org/10.22495/cocv4i3p3