An Empirical Analysis of Convertible Debt Financing by Nyse/Amex and NASDAQ Firms

Posted: 20 Jul 1999

See all articles by Craig M. Lewis

Craig M. Lewis

Vanderbilt University - Finance

Richard J. Rogalski

Dartmouth College - Tuck School of Business

James K. Seward

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Date Written: October 1994

Abstract

We study announcements of convertible debt issues by a large sample of 503 NYSE/AMEX and 303 NASDAQ firms. Pre-issue share price performance is abnormally good for both sets of firms. Announcement period returns are significantly negative for both sets of firms, and post-issue performance also is poor for both. We document a common set of factorsthat governs the design of convertible debt. These factors are consistent with a bondholder-stockholder agency conflict explanation for the design of convertible debt. We also examine and test a number of alternative theories that attempt to explain share price reactions to announcements of convertible debt offers. The factors that partially explain security price reactions differ across NYSE/AMEX and NASDAQ firms. Although no one theory appears to fully explain share price reactions, information asymmetries do influence the share price reactions of both sets of firms. However, we find that the source of the information asymmetry differs between NYSE/AMEX and NASDAQ firms. The well-known size effect does not account for the different reactions across exchanges.

JEL Classification: G32

Suggested Citation

Lewis, Craig M. and Rogalski, Richard J. and Seward, James K., An Empirical Analysis of Convertible Debt Financing by Nyse/Amex and NASDAQ Firms (October 1994 ). Available at SSRN: https://ssrn.com/abstract=5966

Craig M. Lewis (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

Richard J. Rogalski

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

James K. Seward

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-2738 (Phone)
608-265-4195 (Fax)

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