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Systematic risk variations (beta) convertible debenture brazilian companies

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Author Info

  • Renata Drumond Pinto Coelho Antonino

    (PRODABEL)

  • Wagner Moura Lamounier

    (Federal University of Minas Gerais - UFMG)

  • Roberto Kaehler de Albuquerque Maranhão

    (Independent Consultant)

Registered author(s):

    Abstract

    The purpose of this article is to analyze the impact of issuing convertible debentures on the systematic risk of Brazilian companies. Some applied researches in the U.S. capital market (STEIN, 1992; LEWIS et al, 2002; RAI, 2005) indicate that convertible debentures may be used as an alternative financing source when adverse selection problem makes stock issuing unattractive financing source. The analysis of Brazilian companies that issued convertible debentures recorded in the period from 1998 to 2006 and that presented liquidity on the market indicated that variation in beta, on average, is positive. These results are coherent with the signaling hypothesis and with the absence of convertible debenture issuing in 2005 and 2006 on the Brazilian market. They also may be related to the precarious financial situation of issuing companies, observed by the analysis of some financial indicators in year of issue and in two pre- e post-issuing years.

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    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 7 (2010)
    Issue (Month): 3 (September)
    Pages: 1-22

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    Handle: RePEc:bbz:fcpbbr:v:7:y:2010:i:3:p:1-22

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    Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
    Phone: +55 27 4009-4423
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    Related research

    Keywords: Hybrid titles; convertible debentures; systematic risk (beta); adverse selection; signaling.;

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    1. Craig M. Lewis & Richard J. Rogalski & James K. Seward, 1998. "Understanding The Design Of Convertible Debt," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(1), pages 45-53.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-87, May.
    4. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Jeremy C. Stein, 1992. "Convertible Bonds as "Back Door" Equity Financing," NBER Working Papers 4028, National Bureau of Economic Research, Inc.
    6. Lewis, Craig M. & Rogalski, Richard J. & Seward, James K., 2002. "Risk changes around convertible debt offerings," Journal of Corporate Finance, Elsevier, vol. 8(1), pages 67-80, January.
    7. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    8. Atul Rai, 2005. "Changes in risk characteristics of firms issuing hybrid securities: case of convertible bonds," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(4), pages 635-651.
    9. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
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