Wednesday had agreed a £750,000 fee with Bolton for Davies, but were unwilling to pay his salary demands.
The Owls are now set to look elsewhere, as Carlos Carvalhal seeks to bolster his squad at Wednesday.
The break down in the move could be bad news for Bolton, as they had been banking on receiving some money for the midfielder.
The Trotters are in dire need to raise some funds, given their precarious financial situation, but Davies is reportedly set to remain at the Macron Stadium now.
Wednesday’s failure to land Davies continues their frustrating January transfer window so far, which has seen them miss out on a range of targets.
Nick Blackman rejected a move to Hillsborough in favour of Derby County, while Wednesday have also had bids rejected for Brentford winger Alan Judge, according to Sky Sports.