Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation

Abe de Jong, Marie Dutordoir, Patrick Verwijmeren

Research output: Contribution to journalArticlepeer-review


Over recent years, a substantial fraction of US convertible bond issues have been combined with a stock repurchase. This paper explores the motivations for these combined transactions. We argue that convertible debt issuers repurchase their stock to facilitate arbitrage-related short selling. In line with this prediction, we show that convertibles combined with a stock repurchase are associated with lower offering discounts, lower stock price pressure, higher expected hedging demand, and lower issue-date short selling than uncombined issues. We also find that convertible arbitrage strategies explain both the size and the speed of execution of the stock repurchases. © 2010 Elsevier B.V.
Original languageEnglish
Pages (from-to)113-129
Number of pages16
JournalJournal of Financial Economics
Issue number1
Publication statusPublished - Apr 2011


  • Convertible arbitrage
  • Convertible debt
  • Short selling
  • Stock repurchase


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