Investigating Wealth Expropriation through Strategic Debt Issuance: The Bondholder-Shareholder Conflict in Highly Leveraged Firms

Abstract

The current study has discussed the wealth expropriation through the strategic debt issuance in high leveraged companies that are listed in the Pakistan Stock Exchange through the bond holder-shareholder conflict. The research design that the researcher adopts is the quantitative research design which involved the secondary data of 150 non-financial firms in the year 2025. The regression analysis was conducted in terms of panel data to get the relationship between the decision to issue debt and transfer of bondholder wealth. The key variables that were addressed were the abnormal returns on bond, leverage, and asset substitution values, and the dividend patterns payouts whereas controlling key firm-specific attributes such as size, profitability, and growth potential. The fixed and random effect models were employed in the research, and this was complemented by the high diagnostic tests that ensured reliability. The results indicated that strategic debt issue was highly negatively associated with bondholder wealth, indicating that the amount of wealth expropriation in high-leverage Pakistani firms is high. The findings have revealed that the other claim holders have overstepped their residual claim position by paying out excessive dividends and substituting the risky assets in reaction to the new debt problems. The study was able to offer empirical evidence to the agency theory on the corporate debt market in Pakistan and the study has indicated that the conflicts of interest in highly leveraged capital structure needs to be reduced through more effective systems of bondholder protection and regulatory interventions.

Keywords: Wealth Expropriation, Strategic Debt Issuance, High Leveraged Companies, Pakistan Stock Exchange, Bond Holder-Shareholder Conflict