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Risk Changes around Calls of Convertible Bonds

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  • Luis García‐Feijóo
  • Scott Beyer
  • Robert R. Johnson

Abstract

We examine changes in equity and asset betas around convertible bond calls and report two major findings. First, calling firms exhibit an increase in asset betas following the call. We argue that the finding is consistent with the implications of the sequential financing theory but not of the backdoor equity financing theory. Second, abnormal returns at call announcements are negative only for the subsample of firms that also exhibit an increase in equity beta. We conclude that risk changes help explain the market reaction to convertible bond calls.

Suggested Citation

  • Luis García‐Feijóo & Scott Beyer & Robert R. Johnson, 2010. "Risk Changes around Calls of Convertible Bonds," The Financial Review, Eastern Finance Association, vol. 45(3), pages 541-556, August.
    • Handle: RePEc:bla:finrev:v:45:y:2010:i:3:p:541-556
    DOI: 10.1111/j.1540-6288.2010.00260.x
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    Cited by:

    1. Adoukonou, Olivier & André, Florence & Viviani, Jean-Laurent, 2021. "The determinants of the convertible bonds call policy of Western European companies," International Review of Financial Analysis, Elsevier, vol. 73(C).
    2. Tobias Nigbur, 2015. "Calls of convertible debt securities: no bad news at all," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(1), pages 61-79, February.

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