What we do and do not know about convertible bond financing

Dutordoir, Marie; Lewis, Catherine; Seward, James K.; Veld, Chris

doi:10.1016/j.jcorpfin.2013.10.009

Cited by 76 publications

(58 citation statements)

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“…The average three-day Cumulative Abnormal Return (CAR) is −2.5% for the sample, which is consistent with stock price reactions reported by previous studies (Dutordoir et al, 2014). The other issuespecific characteristics are also largely consistent with descriptive statistics reported by other studies (e.g., Duca et al, 2012).…”

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confidence: 88%

“…14 Second, unlike interviews, the security choice approach does not allow a clean test of the validity of individual theories on convertible bond issuance, as the proxies for testing the different theories are largely similar (Dutordoir et al, 2014). For example, the finding in Panel A of Table 5 that convertible bond issuers have higher pre-issue volatility than straight bond issuers is consistent with the risk shifting theory of Green (1984) as well as the risk uncertainty rationale of Brennan and Schwartz (1988).…”

Section: Link With Interview Resultsmentioning

confidence: 99%

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Why Do Firms Issue Convertible Bonds? Evidence from the Field

2012

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We use in-depth interviews with top corporate executives to examine why companies issue convertible bonds. We find that firms issue convertibles when they perceive these securities to be a cheaper form of financing than straight bonds and equity. A large-sample analysis of security offerings confirms this insight by highlighting feature-adjusted yield spreads as a significant determinant of the choice between convertibles and straight bonds, and equity misvaluation as a significant determinant of the choice between convertibles and equity. Our interviews also allow us to verify individual convertible bond theories. We obtain evidence for the theory that convertible bonds are more suitable than straight debt when management and investors disagree about the riskiness of the firm. However, risk shifting, sequential financing, and backdoor equity theories receive little or no support. Finally, our interviews provide strong evidence for the impact of investor demand and financial intermediaries on convertible bond issuance decisions, two factors under-explored by previous studies. JEL: G32, G13, G24

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confidence: 88%

Section: Link With Interview Resultsmentioning

confidence: 99%

Why Do Firms Issue Convertible Bonds? Evidence from the Field

2012

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“…Our paper is also motivated by the suggestion made in Dutordoir, Lewis, Seward, and Veld's (2014) survey on convertible bond that "another limitation is that empirical studies tend to focus on convertibles issued by non-financial corporations. Financial firms are often excluded from research samples, as is common in corporate finance research.…”

Section: Introductionmentioning

confidence: 99%

A comparison of the stock market reactions of convertible bond offerings between financial and non-financial institutions: Do they differ?

Liu

Siganos

2016

International Review of Financial Analysis

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a b s t r a c t a r t i c l e i n f o Available online xxxx JEL classification: G21 G14 G18 Keywords: Convertible bond announcement effect Financials RegulationWe focus on the stock price reaction to convertible bond offering made by financial institutions and find that the cumulative abnormal return over the three day interval around convertible bond issuance is 1.41 percentage higher than that for non-financial institutions. This result supports our hypothesis that since financials are heavily regulated, the market is less likely to assume that the issuance of convertible bond by financials signals information that are overvalued. Our results remain robust after controlling for a number of firm-, issue-, and marketspecific characteristics as well as the level of short selling pressure induced by convertible bond arbitrageurs.

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“…In view of the paper's topic, we focus on documented regional differences of the convertible bond market. For a more general review of issuance motives, shareholder wealth effects, and convertible bond design we refer to Dutordoir et al (2014).…”

Section: Convertible Bond Characteristicsmentioning

confidence: 99%

My global fund portfolio is not yours: the effect of home bias on European- and US-managed convertible bond fund exposures

Campenhout

Vanpée

2016

The European Journal of Finance

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This paper shows that global convertible bond funds (CBFs) and their resulting equity-bond exposures are regionally biased. Global bond fund managers display home bias, resulting in CBFs that are not only tilted towards the home market but also reflect the different bond-equity exposures of European and US convertibles. More specifically we find that global funds managed by a European asset management firm are more bond-like than global funds managed by a US-based asset manager. Hence, investors have to account for the asset management company's origin to avoid that the performance of the fund and its correlation with other assets is not in line with investor's ex ante expectations about globally managed portfolios. Our results also indicate that for investors of European-based CBFs this home bias has resulted in an ex post opportunity cost up to 1.38% per year, depending on the sample period.

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What we do and do not know about convertible bond financing

Cited by 76 publications

References 70 publications

Why Do Firms Issue Convertible Bonds? Evidence from the Field

Why Do Firms Issue Convertible Bonds? Evidence from the Field

A comparison of the stock market reactions of convertible bond offerings between financial and non-financial institutions: Do they differ?

My global fund portfolio is not yours: the effect of home bias on European- and US-managed convertible bond fund exposures

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