Stock buybacks and credit default swap spread changes

• Published in: Seonmul yeongu (Online) Vol. 31; no. 1; pp. 55 - 75
• Main Authors: Park, Heewoo, Park, Yuen Jung
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Group Publishing Limited 03.03.2023; Emerald Publishing; 한국파생상품학회
• Subjects: Abnormal returns; CDS; Credit default swaps; Derivatives; Economic crisis; Macroeconomics; Market shares; Rates of return; Ratios; Recessions; Securities buybacks; Signaling; Stock buyback; Stockholders; Wealth transfer; 경영학
• ISSN: 1229-988X; 2713-6647; 2713-6647; 1229-988X
• DOI: 10.1108/JDQS-08-2022-0019

The authors investigate whether the effects of stock buyback announcements on credit default swap (CDS) spread changes for US firms depend on macroeconomic conditions. The authors find that abnormal CDS spreads increase for small-sized firms announced to repurchase a higher share ratio during the normal period. In contrast, abnormal CDS spreads decrease for big-sized firms regardless of the magnitude of the repurchase ratio during the crisis period. The results of this study suggest that the wealth transfer effect dominates the signaling effect for small-sized firms with higher target ratios during the normal period. In contrast, the signaling effect is stronger for bondholders of big-sized firms during the crisis period.