Factors Affecting The Equity Price Impacts Of Convertible Bonds

Kohlman, Bruce R.; Radcliffe, Robert C.

doi:10.19030/jabr.v8i4.6128

Cited by 5 publications

(3 citation statements)

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“…Beatty and Johnson (1985) analyze the potential to force conversion for callable convertible bonds by calculating call price divided by conversion value. Kuhlman and Radcliffe (1992) measure the motivation of bondholders to convert bonds by calculating conversion price divided by stock price. Moreover, Davidson et al (1995) estimate time to conversion based on stock growth expectations, and argue for a negative correlation between length of time and how debt-like the issue is.…”

Section: Datamentioning

confidence: 99%

Signaling with convertible debt in the renewable energy industry?

Ettenhuber

Schiereck

2015

International Journal of Energy Sector Management

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Purpose – The purpose of this paper is to show how convertible debt is used in the renewable energy industry. The authors argue that there is an investor rationing component to the design and market impact of convertible debt securities. Design/methodology/approach – The authors apply event study methodology, option pricing theory and risk shift analysis to examine capital market reactions following the issuance of convertible debt by exchange-listed companies of the renewable energy sector. Findings – Contrary to prior cross-industry research findings, the authors show that convertible debt in the renewable energy industry tends to have a debt-like structure, and its issue is associated with strongly negative announcement returns. The authors further show that convertible issuers face high business risk and adverse selection costs. Practical implications – The results have important implications for both renewable energy industry companies and investors. For example, one problem is that the risk-mitigating features of convertible debt may not materialize, if issuers fail to credibly signal firm quality to the markets. Furthermore, excessive growth assumptions and mismatches between project risk/return and financing costs may render it more difficult to create credible signals. Originality/value – The paper contributes to three primary strands of literature. One is the research on finance and growth. Here, this paper provides new insights into risk-mitigating securities that should more effectively mirror the risk and return distributions of emerging industry issuers. Additionally, it extends the research on the motives for convertible debt offerings and provides insight on stock returns around such announcements.

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Section: Datamentioning

confidence: 99%

Signaling with convertible debt in the renewable energy industry?

Ettenhuber

Schiereck

2015

International Journal of Energy Sector Management

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“…or samples identifying only CBs. These studies include those carried out by Smith (1986), Kuhlman and Radcliffe (1992), Brennan and Her (1993), Davidson et al . (1995), Jung et al .…”

Section: Cb Issues and Underlying Stock Market Reactions: Theoretimentioning

confidence: 99%

“…or samples identifying only CBs. These studies include those carried out by Smith (1986), Kuhlman and Radcliffe (1992), Brennan and Her (1993), Davidson et al (1995), Jung et al (1996) and Lewis et al (1999) for the US market and by Burlacu (2000) and Ducassy (2003) for the French market. First, the market reactions to all issues (shares, CBs and standard debt) confirm, in particular, the 'pecking order theory'.…”

Section: Market Reactions To the Announcement Of Cb Issuesmentioning

confidence: 99%

The Consequences of Issuing Convertible Bonds: Dilution and/or Financial Restructuring?

Gillet¹,

Bruslerie²

2010

Euro Fin Management

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Historically, most convertible bond (CB) issues have been converted to equity sooner or later. The announcement of a CB issue will bring about a future dilution of the firm's capital, and is often followed by a drop in share price. However, a CB issue by itself creates future value for the shareholders if it enables the firm to make profitable investments. It can also issue a positive signal regarding the restructuring of the firm's financial liabilities and its attempts to optimise its financial structure. These positive effects, if they occur, will develop gradually after the issue, and cannot be identified by a simple short-term event analysis of a CB issue announcement. In this paper, we test the significance of the dilution effect, coupled with a possible value creation effect, using data from the French stock market. We introduce a comparison between dilutive convertibles and non-dilutive exchangeable bonds. By integrating different corrections and by selecting a window of analysis over a longer period after the announcement of the issue, we show that the negative cumulative average abnormal returns generally observed in previous studies become non-significant. This absence of global incidence is indicative of large differences in individual behaviour by issuers of CBs, and leads us to take into account the strategic choices linked to the issue of a CB. Two goals, often described as 'investment financing' or 'financial restructuring', may exist when issuing, and may appear to explain the size of the abnormal returns.

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New evidence on the pecking order hypothesis: the case of French convertible bonds

Burlacu

2000

Journal of Multinational Financial Management

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Factors Affecting The Equity Price Impacts Of Convertible Bonds

Cited by 5 publications

References 0 publications

Signaling with convertible debt in the renewable energy industry?

Signaling with convertible debt in the renewable energy industry?

The Consequences of Issuing Convertible Bonds: Dilution and/or Financial Restructuring?

New evidence on the pecking order hypothesis: the case of French convertible bonds

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