Dissertation/Thesis Abstract

The announcement effects and the long-run performances of convertible bond issuances
by Xie, Wei, M.Sc., Singapore Management University (Singapore), 2009, 117; 1478880
Abstract (Summary)

We discuss several measurements of equity components in CBs and then examine the short-run announcement effects and the long-run performances surrounding CB issuances by dividing the whole sample of CBs into a debt-like portfolio, a mixed portfolio and an equity-like portfolio. At the time of the CB issuance announcements, the market reactions to different portfolios strictly follow a hierarchy predicted by the pecking order hypothesis. In the long-run subsequent to the CB issuances, the buy and hold stock returns of the equity-like portfolio significantly underperform the industry and market benchmarks and the debt-like portfolio; the operating performances of the issuers that issuance equity-like CBs significantly deteriorated from the pre issuance period, inducing them to underperform both the issuers that issuance debt-like CBs and their non-issuing counterparts; and also, the equity-like portfolio went through the most significant increase in the idiosyncratic risk and the total equity risk, which however still do not differ significantly from their industry levels. Furthermore, we notice that the CB issuers’ post issuance long-run performances are to a large extent consistent with the short-run market reactions they received. By controlling the equity risks, we contend that the market is able to form an unbiased foresight of the future operating performances of the CB issuers at the time of the CB issuances, and the short-run announcement effects are mostly determined by this market perception.

Keywords: convertible bond issuance, hedge ratio, announcement effect, long-run performance.

Indexing (document details)
Advisor: Goh, Jeremy
School: Singapore Management University (Singapore)
Department: Lee Kong Chian School of Business
School Location: Republic of Singapore
Source: MAI 48/06M, Masters Abstracts International
Subjects: Banking
Keywords: Announcement effect, Convertible bond issuance, Hedge ratio, Long-run performance
Publication Number: 1478880
ISBN: 9781124085289
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