Bondholder Wealth Effects in Mergers and Acquisitions: New Evidence from the 1980s and 1990s


  • Matthew T. Billett,

  • Tao-Hsien Dolly King,

  • David C. Mauer

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    • Billett is at the University of Iowa, King is at Southern Methodist University, and Mauer is at Southern Methodist University. The authors thank David T. Brown; Hemang Desai; Jon Garfinkel; Rick Green (the editor); Peter Mackay; Bill Maxwell; David Reeb; Anand Vijh; Luigi Zingales; seminar participants at Iowa State University; and an anonymous referee for helpful comments. Any errors are our own.


We examine the wealth effects of mergers and acquisitions on target and acquiring firm bondholders in the 1980s and 1990s. Consistent with a coinsurance effect, below investment grade target bonds earn significantly positive announcement period returns. By contrast, acquiring firm bonds earn negative announcement period returns. Additionally, target bonds have significantly larger returns when the target's rating is below the acquirer's, when the combination is anticipated to decrease target risk or leverage, and when the target's maturity is shorter than the acquirer's. Finally, we find that target and acquirer announcement period bond returns are significantly larger in the 1990s.