The Rise and Impact of Hybrid Securities in Australian Listed Corporations

Carlin, Tyrone M.; Finch, Nigel

doi:10.2139/ssrn.841204

Cited by 3 publications

(1 citation statement)

References 9 publications

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“…H 1 : There should be a strong association between convertibles' ex ante and ex post classifications as debt-like and equity-like. Carlin and Finch (2005) and Suchard and Singh (2006) argue that the Australian convertible market is industry-specific in that firms in different industries have different motivations for issuing convertibles. Mayers (1998) suggests that firms facing a sequence of potential financing requirements would find that issuing debt-like convertibles is a cost-effective solution.…”

Section: Development Of Hypothesesmentioning

confidence: 99%

How Accurately Can Convertibles be Classified as Debt or Equity for Tax Purposes? Evidence from Australia

Fenech

Fang

Brown

2016

Review of Law &Amp; Economics

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The New Business Tax System (Debt and Equity) Act established a set of criteria by which convertible securities could be classified as "debt-like" or "equity-like" for tax purposes. Using data on 256 convertible issues made in Australia between 2001 and 2012, we show that there is a strong relation between, on the one hand, a convertible's ex ante classification determined at issuance using the tax criteria and, on the other hand, its ex post classification based on the conversion premium at maturity. We conclude that the criteria have been an efficient means of classifying convertibles. We also find an industry effect where debt-like convertibles are more likely to be associated with the resources, metals and mining firms, whilst equity-like are mainly issued by the finance sector. This finding is consistent with the solution to a financesequencing problem in the former case, and the impact of capital adequacy regulation in the latter.

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Section: Development Of Hypothesesmentioning

confidence: 99%